Mortgage rates are down! It may be a good time to refinance, or learn the income you need to buy a median-priced home in the top 50 metro areas!

Mortgage rates are down! It may be a good time to refinance, or learn the income you need to buy a median-priced home in the top 50 metro areas!

The Credit Shelf

The Credit Shelf

The Credit Shelf is a section of HSH.com devoted to credit and related topics. You'll find out how your credit report can affect you; how to find and correct errors in your credit reports; where to get help; how to find lenders for any credit rating; "credit scoring;" and more.

Repairing your credit history is a three-step process:

Check Your Credit History

"I applied for a mortgage and was surprised to be rejected due to a credit report. About 60% of the credit report looks wrong (late payments where a payment was sent on time, etc.). How should I go about rectifying this? Or should I look for another lender?"

Going to other lenders won't help, because all lenders use the major credit reporting agencies. You need to attack the problems at their source -- by getting errors out of your records.

Credit repair is a time-consuming process, but you can do it yourself relatively easily -- and for little or no cost. Don't put it off; erroneous entries on your credit record will eventually affect your ability to get other types of credit.

Get your free credit reports

You have the right to examine your credit records and, if you feel there are mistakes on them, to get them corrected. See Five Credit Report Errors That Will Cost You to learn about the items you may want to correct first.

Federal law also gives you the right to get a free credit report, once per year, from each of the three major credit-reporting agencies. The very helpful website AnnualCreditReport.com will guide you through the process.

You are also entitled to a free copy of your report if you have been denied credit recently. In addition, the Fair Credit Reporting Act also gives you the right to demand that the credit reporting agencies double-check disputed items with your creditors, and correct them.

We recommend that you do not use outfits which claim they can "repair" your credit history for a fee (which can run $500 to $1,000). They often use questionable tactics (such as flooding a credit reporting bureau with letters) which are generally ineffective -- factual information on bad debts stays on your record, period. (In fact, a law from the Federal Trade Commission targets credit repair firms which don't do what they claim. The Credit Repair Organizations Act, which amends the Truth in Lending Act, bars them from taking money up front, mandates that they inform you of your legal rights, and says they must spell out the terms of their contract, which you can cancel within three days.)

How to Shop for Your Mortgage  

Verify Your Credit Records

"According to federal law, you have the right to inspect your credit reports, and to request corrections. Take advantage of this right now, even if you're not ready to apply yet... you'll want to contact the agencies and get copies of your credit report from each of the major sources. ... Once you've got the copies in hand, you'll need to verify everything very carefully... If there are errors in your report, now's the time to challenge them."
    -- From "HSH's How to Shop For Your Mortgage,"  

Further reading:

Credit Reporting Agencies

The the three major credit reporting agencies are linked here, should you need to contact them individually. However, if you just want the once- per-year offer of free credit reports, you can streamline the process by obtaining them via AnnualCreditReport.com.

When you request a copy of your credit report, you will typically need to provide them with your full name (including middle initial, Jr., Sr., III, etc.), your Social Security number, maiden name (as applicable), and all your addresses for the past five years. Experian (which used to be TRW) also needs proof of your current address.

Credit Scoring

"When we applied for a mortgage, the loan officer said we had a good 'credit score.' What does that mean?"

"Credit scoring, simply put, is a mathematical analysis that quantifies your credit history into a single number. ... In general, the score evaluates how many accounts you hold, your repayment histories for certain types of loans or lines of credit, how often you have applied for credit, length of employment and other traits. From there, a numerical score is produced, and this is attached to your credit report."
-- From "How to Shop For Your Mortgage,"   page 13.

For a guideline of what your credit "score" might look like, try our Credit Grade Calculator.

And be sure to read "The Scoring Game," an article written by HSH which explains FICO -- and what a credit score means to (and for!) you.

Introducing "VantageScore"

More than 10 years ago, the big three credit reporting agencies replaced their proprietary credit-scoring systems with a single method called "VantageScore". It is numerically-based like a FICO score, with a range of values between 501 and 990. However, it also has letter grades from 'A' to 'F'. Will it supplant FICO as the primary credit score model? It's too soon to tell, but it is gaining some favor in the marketplace.

Credit Counseling Services

There are services, both low- or no-free and for-pay, which offer to mediate with your creditors and help you to restructure your debt. Your local phone book will be the best place to find one near you.

A similar agency well worth talking to is the National Foundation for Credit Counseling, a non-profit community service which provides consumer credit info, confidential budget and credit counseling, and debt repayment plans. Their Consumer Credit Counseling Service has offices nationwide, and their fees range from free to $15. You can see their Website, or call them at 800-388-CCCS (800-388-2227), for the location of the office nearest you.

(Have an addition to this list? Please let us know.)

Lenders for Imperfect Credit Borrowers

"My husband and I have what we consider good secure jobs. We have held these jobs for many years and make a decent living, but our credit isn't perfect. Is there any place we can go to that we won't be taken advantage of?"

Yes. Although still tricky to find, and mostly available from mortgage bankers and mortgage brokers, loans to borrowers who fall outside of conventional norms are becoming easier to get. These include folks with lower credit scores, those who have irregular or seasonal income streams and more. These "non-QM" and "near prime" mortgages are a growing business for lenders, and if you think your qualifications fall outside of conventional norms, you might contact some of our partners to see if they have offerings to meet your needs -- or shop your local market.

Be sure to visit the HSH.com for a wealth of general information on mortgages, consumer finance, finding the appropriate regulators, and other topics.

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