Disputing Errors On the Credit Report

If you are in the process of reviewing your credit reports, the first thing to do is make sure that the information contained within the reports is correct. In June 2004, The U.S. Public Interest Research Group published the results of a survey it conducted involving 200 adults in 30 states to test the validity of credit reporting. Their findings were as follows.

Twenty-five percent (25%) of the credit reports contained errors serious enough to result in the denial of credit;

Seventy-nine percent (79%) of the credit reports contained mistakes of some kind;

Fifty-four percent (54%) of the credit reports contained personal demographic information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect;

Thirty percent (30%) of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.

SOURCE: U.S. Public Interest Group Research; One In Four Credit Reports Contains Errors Serious Enough To Wreak Havoc For Consumers, US PIRG Press release, 06/17/04 http://uspirg.org/uspirgnewsroom.asp?id2=13650om

If you find that you have errors on your credit report, follow this procedure to correct those errors.

1. Make a copy of the report and circle the items you are questioning. Keep your original copy for your own records.

2. Prepare a letter to the CRA that provided you with the report in question, and request to have the erroneous item(s) removed. If you have proof of payment for an item in question, include a copy of that documentation.

3. Prepare a letter to the creditor reporting the problem, especially if you feel you are a victim of fraud or identity theft. Inform the creditor that you are disputing an error reported to the CRA, state why the claim is inaccurate, and include any relevant documentation to prove your point.

4. Send your correspondence via certified mail.

You should receive a response from the CRA within 30 to 45 days. If the error has been corrected, they will send you a fresh copy of your credit report at no charge to show you that the item has been removed. They will also send a corrected report to any entity that received a report that contained errors within the last six months. If you cannot have a disputed item removed, you have the right to include your side of the story on the credit report. Your statement should be a concise explanation (100 words or less) as to why you are challenging the item in question. From that point on, this notation will be included in your credit report as long as the item in question remains on your report.

Credit Remediation

If you feel you would prefer to work with a credit repair service rather than try to tackle credit repair issues on your own, please give us a call so we can help you sort through your options. We will do our best to refer you to a reputable credit remediation service and guide you in the right direction once we have the opportunity to review your credit report with you.

The Federal Trade Commission (FTC) regulates credit repair services and provides free information to help consumers spot, stop and avoid doing business with credit repair companies that are not reputable. Their web site is located at http://www.ftc.gov/

You can also write to the FTC to request a copy of their free brochure titled Credit Repair: Self Help May Be Best, which includes information about credit clinics. The address to write to is:

If you have any complaints regarding your credit report or credit remediation services that you wish to report to the FTC, contact them at:

Federal Trade Commission
Sixth and Pennsylvania Avenues
NW Washington, DC 20004

Federal Trade Commission
Consumer Response Center, Room 130
600 Pennsylvania Avenue
NW Washington, DC 20580

For more information on your credit call or email

Jason Schiller
Waukesha State Bank
262-244-0303 (Business)
414-659-6347 (Mobile)
jschiller@waukeshabank.com

Brad Koenig
Your Local Home Team-First Weber
http://www.yourlocalhometeam.com/
262-719-7393

How Does a Low Credit Score Affect My Interest Rate?

Lenders estimate your ability to pay back money based on your credit score. The risk factor they take on is built-in to your interest rate as a financing fee. Therefore, a low credit score results in a higher interest rate, higher monthly fees, and a higher amount of interest being paid over the total life of the loan.

Referring back to our chart, a borrower with a credit score of 620 would be questionable to an underwriter. While the lender may agree to provide financing, the increased interest rate is factored into the monthly payment. The following chart illustrates the difference in the amount of interest paid over the life of the same loan with three different credit score scenarios.

A borrower who increases his or her credit score from 620 to 720+ can potentially save $601 per month on mortgage payments, $7,214 per year, and approximately $216,432 over the life of the 30-year loan.

30-Year Fixed Rate with a Principal Loan Amount of $250,000 FICO SCORE APR MONTHLY PAYMENT INTEREST PAID Above 720 5.71% $1,453 $272,928 620 to 719 5.796% to7.84% $1,466 to $1,807 $277,845 to$400,381 Below 620 8.452% to 9.234% $1,914 to $2,054 $438,957 to $489,365

SOURCE: Credit Resource Corp., How Much Does a Low Score Cost You? http://www.creditresourcecorp.com

How Does the Underwriter View My Score?

If you are considering a home purchase, it is in your best interest to make every effort to increase your credit score, especially if you know you have issues you should be dealing with. It is often the case that people  are  not  aware  of  badmarks on their credit record until they apply for financing for a major purchase, such as a home.

As part of the loan process, we run a credit report for you. But you can take advantage of the opportunity to get a free credit report from each of the three main CRAs: Equifax, Experian and TransUnion. As a sidebar, you can choose to get the free report from all three bureaus at the same time, so you are aware of what information each bureau has collected. Another option is to pull your credit report from one agency, and reserve the right to get your free reports from the other two CRAs as you work on improving your credit standing.

We believe it is best to have the full overview up front. Different CRAs have different methods of calculating these scores, and may also have different information contained within their findings. Consider the adage, “Why jump over nickels to pick up pennies?” If additional reports are needed within a 12-month period from any of the three CRAs, the cost is extremely minimal compared to the potential savings that can be realized by an improved credit score, and if you run a credit report on yourself it will not affect your own score as an inquiry.

The underwriter who is making the decision as to whether or not you should get the loan you are asking for will generally look at the scores generated from all three CRAs. Typically, the score will not be the same from all three reports, and the underwriter will consider the middle score as a barometer.

For more information on your credit call or email

Jason Schiller
Waukesha State Bank
262-244-0303 (Business)
414-659-6347 (Mobile)
jschiller@waukeshabank.com

Brad Koenig
Your Local Home Team-First Weber
www.YourLocalHomeTeam.com
262-719-7393

In the next few posts We will be addressing the following topics.

Disputing Errors On the Credit Report
The History of Credit Scoring
How Does the Underwriter View My Score?
Dealing with Credit Challenges
Do’s and Don’ts During the Loan Process
Credit Remediation

Your Credit Score Part 2 The Five Factors of Credit Scoring

Why Your Credit Score is So Important

The credit scoring model seeks to quantify the likelihood of a consumer to pay off debt without being more than 90 days late at any time in the future. Credit scores can range between a low score of 350 and a high score of 850. The higher the score, the better it is for the consumer, because a high credit score translates into a low interest rate. This can save literally thousands of dollars in financing fees over the life of the loan.

Only one out of 1,300 people in the United States have a credit score above 800. These are people with a stellar credit rating that get the best interest rates. On the other hand, one out of every eight prospective home buyers is faced with the possibility that they may not qualify for the home loan they want because they have a score falling between 500 and 600.

The following chart illustrates how an underwriter interprets the credit score in terms of risk, and how the interest rate is affected as a result. Mortgage lenders consider a score of 700 or above to be very good.

The Five Factors of Credit Scoring

Credit scores are comprised of five factors. Points are awarded for each component, and a high score is most favorable. The factors are listed below in order of importance.

1. PAYMENT HISTORY – 35% IMPACT

Paying debt on time and in full has the greatest positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Missing a high payment will have a more severe impact than missing a low payment, and delinquencies that have occurred in the last two years carry more weight than older items.

2. OUTSTANDING CREDIT BALANCES -

30% IMPACT

This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home.

3. CREDIT HISTORY – 15% IMPACT

This portion of the credit score indicates the length of time since a particular credit line was established. A seasoned borrower will always be stronger in this area.

4. TYPE OF CREDIT – 10% IMPACT

A mix of auto loans, credit cards and mortgages is more positive than a concentration of debt from credit cards only.

5. INQUIRIES – 10% IMPACT

This percentage of the credit score quantifies the number of inquiries made on a consumer’s credit within a six-month period. Each hard inquiry can cost from two to 25 points on a credit score, but the maximum number of inquiries that will reduce the score is ten. In other words, 11 or more inquiries within a six-month period will have no further impact on the borrower’s credit score. Note that if you run a credit report on yourself, it will have no affect on your score.

Remember that the credit score is a computerized calculation. Personal factors are not taken into consideration when a credit report is generated. It is merely a snapshot of today’s credit profile for any given borrower, and it can fluctuate dramatically within the course of a week.

For more information on your credit call or email

Jason Schiller
Waukesha State Bank
262-244-0303 (Business)
414-659-6347 (Mobile)
jschiller@waukeshabank.com

In my next few posts I will be addressing the following topics.

How Does a Low Credit Score Affect My
Interest Rate?
Disputing Errors On the Credit Report
The History of Credit Scoring
How Does the Underwriter View My Score?
Dealing with Credit Challenges
Do’s and Don’ts During the Loan Process
Credit Remediation