CREDIT FAQs

FAQs

What is a credit report?

A Credit Report is a report of information maintained by credit bureaus. The report will have information such as your name, address, social security number, and credit payment history. Credit grantors, such as banks, may report positive or negative credit payment information to the credit bureau. Utilities, such as the telephone and power companies, may also report your payment history. Credit grantors may review this information any time you apply for a loan, including a credit card, to use in determining whether they will lend you money.

Can you explain what is bad and what is good credit score?

Until recently the good score was at 680 mark. Now however, with all those changes in the economic climate and credit crunch, a good score is considered to be of 740 or better. Here is the range of rating scores:

300 to 559 BAD
560 to 659 FAIR
660 to 724 GOOD
725 to 759 EXCELLENT
760 to 850 YOU ARE THE MAN!

Under current economic conditions, scores higher than 740 are ideal.

This new standard is troubling. It raises the bar very high for people to achieve good credit. As a credit expert, I have seen very few credit scores over 740. However, I do believe that, over time, standards will lighten up. But, until then, consumers need to learn everything they can about achieving good credit, and must take the steps to get there.

Can I see my credit report?

Most credit grantors are not allowed by the credit reporting agencies to show you your own credit report. You can purchase your credit report from the credit reporting agencies for a fee. Once you receive your credit report, you may find that you are not equipped to read it due to the lack of knowledge about the unfamiliar codes and other information contained therein. TransUnion and Equifax credit reports are very difficult to interpret and understand. Experian credit reports, on the other hand, are relatively easy for most people to read.

How many scores do I have?

Every individual has three credit scores that are used by both lending and non-lending industries. These scores are generated from the data stored at the three credit bureaus: Equifax, Experian, and TransUnion. However, since most lender use what it’s called the “middle score”, there is a common myth out there that there is only one score.

Where it gets confusing is that there are hundreds of versions of these three credit scores generated from this data and sold to consumers and lenders by hundreds of different credit score vendors. Every credit score vendor uses the same data from each credit bureau, however, they all use different software to calculate those scores.

When it comes to applying for a loan, consumers have no idea of which scores will be used. This makes it crucial for consumers to consistently check and manage the data that is being reported about them to each individual credit bureau.

Why do my credit scores vary between the three bureaus?

Credit scores between the credit bureaus can vary by as much as 100 points or more. This is because not all creditors report all of your credit to all three credit bureaus, and since the credit bureaus are competitors they DO NOT share data with one another. This explains why the scores vary as each line item affects the score either up or down. It's important to make sure that all credit bureaus are reporting your "good credit."

Why I don't have any credit scores at all?

Some of the reasons that would cause a consumer not to generate a credit score or credit report are as follows:

They don't have a social security number.
They are not over the age of 18.
They don't have enough credit. It takes at least one credit account that has been open 4-6 months to produce credit scores.
Their open accounts have not been active for 6 months.
Their credit reports are only showing negative credit. No open positive accounts.
They are being reported as deceased.
The information entered to pull their report is incomplete.
They have a fraud alert on their credit file.

I have heard about some abbreviation, called “R1” and “R9”. What are those?

"R" refers to a revolving account, "I" refers to an individual account, and "M" refers to a mortgage account. The creditor supplies this rating. It is their rating of you as a borrower. There are only two ratings that are not negative. A rating of "1" is good and a rating of "0" means that they don't have enough history with you to rate you. Every other rating, "2" through "9" is negative. In our experience, creditors don't look at these ratings when you apply for financing. The creditor usually looks at the late pays or other notations such as "charge off" or "collections." However, any rating BUT a "1" or "0" indicates that you have problems with the account.

How quickly can a credit score change?

Your credit scores are a snapshot of the moment. They can change whenever the information on your credit report changes. The good news is that once it changes, yesterday's score is non-existent and you don't have to worry about your past haunting you.

Do lenders use all three credit scores?

Mortgage lenders use the middle of the three credit scores. In most cases, when it comes to a joint account application for mortgage, the lender will use the lower of the two middle scores. It’s also a common myth that that mortgage lenders and other creditors use the average of the three credit scores. This is not the case!

What information is included in credit score calculation?

Many consumers think that as long as they pay their bills on time they will automatically have high credit scores. That's not how it works. Obviously, paying your bills on time is important; but understanding the factors that make up your credit scores is your key to maintaining good credit, as well as your key to taking immediate and lifelong steps toward credit improvement. If you manage each factor properly, the basic formula is easy to understand and is a powerful tool.

The exact formula for calculating your credit scores is not public, and probably never will be. It is under U.S. Patent Law, and only Fair Isaac & Co. has access to the formula.

According to Fair Isaac & Co., the creator of the scoring system, there are five factors that go into calculating credit scores. The following pie chart is a guideline as to how much each factor is considered:

What information is not being used to calculate the credit score?

Your race, color, religion, national origin
Sex and marital status
Age
Salary, occupation, title, employer, date employed, employment history
Where you live
Interest rates
Dollar amounts
Any items reported as child/family support obligations or rental agreements (unless they become delinquent)
Soft inquiries
Information not proven to be predictive of future credit performance
Whether or not you are participating in a credit counseling program of any kind

Does enough good credit offset any bad credit?

Any amount of bad credit is devastating to your chances of being approved by a credit grantor. Most credit grantors never actually look at your credit report. A computer pulls your credit report, rates your credit standing, income, indebtedness, and stability, and then spits out an acceptance or denial. Even one or two late payments will usually trigger a credit card or personal loan denial. The slightest amount of negative credit will cause the interest on an auto loan to skyrocket. You will probably find that even a little bad credit, regardless of how much good credit you have, is an unacceptable barrier to credit approval. In fact, the better your credit score is, the worst a negative item will affect your score.

Should I close credit card accounts if I have not used those cards for a long time or I have too many of them?

This is not a wise decision. If you feel you have too many accounts, then simply stop using all of the accounts. Let some of them become unrated. You will lose points in two factors when you close a credit card account, both in the Amounts Owed Factor (30%) where you will lose available limit, and in the Length of Credit History Factor (15%). These two factors combine to make up nearly half of your credit scores, so pay attention. A common misconception by consumers is that when you close a credit card account, any bad history on that account goes away. This is not the case. That history stays with you.

The only time closing a credit card account should be considered is in the instance of divorce, identity theft, or removing your name from an authorized user account that has incurred negative history or has high balance-to-limit ratios.

Does it hurt my credit score when I pull your own credit report?

Soft inquiries DO NOT affect your credit scores. Here are some examples of what would be considered soft inquiries:

When you pull your own credit.
When one of your existing creditors does a periodic review of your credit. This is called an account review.
When a creditor has purchased your name from the credit bureaus for the purposes of sending you some sort of credit solicitation in the mail. This is called a promotional inquiry.
When an employer checks your credit before hiring you.
When you apply for auto insurance.
When a landlord checks your credit

How long do negative items stay on?

The Fair Credit Reporting Act (FCRA) requires that most negative credit items be deleted from your credit bureau file in no more than seven years, except for bankruptcy, which can be reported for up to ten years. These are the time limits for reporting negative credit. The creditor or the credit bureau can choose to have the negative credit information deleted whenever they please. Inquiries may remain on the credit report for up to two years.