Find Out What's On Your Credit Report

We provide real estate services to buyers and sellers in Pennsylvania (Berks County, Chester County, Delaware County, Montgomery County, Philadelphia, Drexel Hill, Haverford Township, Havertown and Upper Darby) as well as in New Jersey (Brigantine, Atlantic City, Ocean City, Camden County and Gloucester County).

Anyone who has ever had a bank account, mortgage, credit card, car loan, or account with a retail store will invariably have a credit rating.  Most information in your credit rating comes from companies you have credit with, as well as from certain public records such as tax liens, bankruptcies, judgments and lawsuits.  It is important to know and understand your credit rating, how the information is compiled, and how it affects your ability to acquire a loan for your new home.

Credit scoring is the use of a mathematical model to evaluate your creditworthiness at a point in time. The resulting score assesses the likelihood that you will be approved for credit. The higher the score the greater the likelihood that you will be approved for credit, possibly with a better rate than if you had a low score. Anytime information changes in your credit report, your score will change. If you have a short or incomplete credit history, it may not be possible to calculate a score.

The most popular credit score is a credit bureau risk score that is based only on what is in your credit report. These scores are commonly referred to as FICO scores (named after Fair Isaac, the company who developed the scoring model), although the three credit bureaus sometimes use their own names: Beacon (Equifax), Empirica (Trans Union) and Experian/Fair Isaac Model.


How do I interpret my score?

Your credit score provides a good summary of how lenders will view your credit profile; however, it is only one of the factors that a lender may consider. Lenders generally look at three areas:

• Credit reputation: your credit score and history
• Collateral: your loan amount relative to the home value
• Capacity to pay: your income, debt, cash reserves

As a result, a lender could prefer a lower score borrower with favorable factors over a higher score borrower with negative factors.

FICO scores range from the low 300s to about 900. The following table will give you a general idea of what your score tells lenders, but remember there are no set rules. Different products and lenders use different guidelines for what is an acceptable score. Also, there will usually be small differences in the scores calculated by each of the three credit bureaus. Lenders will often use the middle of your three FICO scores.

What determines my score?

Since the scores are calculated using a proprietary system, the exact rules are not public knowledge. However, according to Fair Isaac, the model only considers factors that have been found to predict credit risk. These factors are not weighted evenly and several minor instances may indicate a higher risk than one major, but isolated, credit problem.

There are five main categories of credit information, which impact your credit score (listed in decreasing order of importance):

1. Late payments, delinquencies, and bankruptcies: Past inability to pay on time will hurt your chances of getting credit in the futures. More recent problems will be counted more heavily than those in the past.
2. Outstanding debt: the more debt one has , the greater the risk tat he or she will not be able to keep up with the payments.
3. Length of credit history: With a short track record it is harder for a lender to assess creditworthiness.
4. New applications for credit (inquiries): Frequent credit checks by lenders may indicate that a borrower is looking to increase his or her amount of debt. (Tip: When seeking a loan, make sure you do not allow anyone to pull your credit report unless a competent Loan Officer or Lender assures you that chances are good that you will be approved for the loan, and that you are certain that you will go ahead a get a loan.)
5. Types of credit in use: Some types of credit, including credit cards, provide you with a credit line greater than the amount you have already borrowed. The more credit available, the greater the risk to the lender since a borrower can easily increase their outstanding debt. (Tip: Try to limit the number of open credit cards to four as this can reduce your score 10 or more points. Credit cards with longer positive history are better than those with shorter history. So in choosing which credit cards to keep open, choose those cards with longer positive history.)

Your REALTOR can recommend a reputable mortgage lender who has the reputation of providing excellent service and good rates.  This lender will be able to immediately pull your credit report for your review and can make recommendations of how to make it better.  The better your credit score, the higher your credit rating will be.

How much will Slip-ups lower a FICO score?

FICO scores are widely used by lenders.  If you are wondering how various slip-ups would affect your FICO score, here it is: if your FICO score is 680, a 30-day delinquency drops it by 60 to 80 points; maxing out a credit card costs 10 to 30 points; a short sale, foreclosure or deed in lieu of foreclosure costs 85 to 105; and declaring bankruptcy shrinks it by 130 to 150.  If those same missteps are made by someone with a 780 FICO score with few signs of risky credit behavior in the past, the number of points lost could be about 50% higher in each case.  However, this is not an exact science, and other factors could affect the outcome.

Choose your agent wisely.  Working with a full-time professional real estate agent is a must. Ask questions of your agent.  Find out how knowledgeable he or she is about houses currently for sale in your price range and also of houses that have recently sold.  Can your agent recommend a good lender that has the reputation of excellent customer service and low rates?  Does your agent ask questions of you to have a full understanding of what you are looking for to help you get the most home for the money?

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Last modified:  08/22/2010