Good credit is one of the greatest assets you can obtain and protect. Whether buying a car or real estate, good credit always gives you more options and better financing terms. While we can work with most credit profiles, it’s important to have your rating be the best it can be.
Here are some frequently asked questions (FAQs):
How can I check my credit?
What are FICO scores?
What affects my FICO scores?
How can I increase my credit scores?
Does paying off delinquent accounts always improve my credit?
What if I don’t have any credit or credit scores?
What if there is an error on my credit report?
Where can I get more information on credit?
How can I check my credit? There are several ways to check your credit. But first, it’s important to know that there are three major independent credit bureaus in the U. S. They are: Equifax (1-800-685-1111), Trans Union (1-866-887-2673) and Experian (1-888-397-3742) While your credit information may be similar with all three, the information they gather comes directly from creditors, who may not report to all three bureaus. That means for instance, when you wish to report an error in your credit file, you’ll need to report it to each bureau that has the error.
Credit reporting laws vary from state to state. If you are a California resident, you may obtain a free report once per year under law. These free reports won’t include FICO scores, but the good new is they count as an inquiry on your credit file or affect your credit score. You may now obtain all three bureau reports through one website co-sponsored by the three major bureaus at: www.annualcreditreport.com Or you can [Click here] for mailing instructions and pre-formatted letters in MS Word (.doc) The bureaus will offer additional services (for a fee of course) such as: FICO scores; Credit watch service; Merged reports (compiled information from all three bureaus into one report). Read the fine print before you take them up on their offers. You might pay thirty dollars or more for a merged report that doesn’t include all three FICO scores – ouch!
Many third party companies offer merged reports for less than the credit bureaus themselves. If you opt for one of these reports, make sure it FICO scores from each bureau along with the contact information for creditors who report or have made an inquiry into your credit.
If you’re in the process of obtaining a mortgage loan now, your mortgage lender will need to run a credit report. The report will need to be recent (within 90 days from the date that the loan is funded). Make sure no one runs your credit without your permission, as inquiries may affect your scores. My best suggestion is that you know who you are dealing with. Work with reputable mortgage companies that have come highly recommended from someone you trust.
What are FICO scores? FICO is short for Fair, Isaac & Co. - the company that developed a credit scoring system used by the lending industry which studied the credit usage of millions of people. The scoring system is based on risk models as a method of determining the likelihood that credit users will pay their bills. FICO scoring has become widely accepted by lenders as a reliable means of credit evaluation. A FICO score attempts to condense a borrowers credit history into a single number. Most lenders count the middle of the three bureau’s scores. The score range is from 300 (worst possible) to 850 (best possible). 
What affects my FICO scores? Credit scores analyze a borrower's credit history considering over 40 factors. Factors are grouped into the five general categories below. The percentages reflect the the approximate value placed on each category for the average American. The importance of these categories change with different risk models (i.e. someone who recently established credit).
- 35% Previous credit performance: Major delinquencies, length of time since last delinquency, chargeoffs, collections, judgments, bankruptcies or liens
- 30% Current level of indebtedness: Proportion of balances to credit limit, total amount owed, number of open accounts
- 15% Amount of time credit has been in use: age of account, length of time since account opened
- 10% Pursuit of new credit: Time since last account opened, inquiries
- 10% Type of credit used: Number of revolving accounts, installment accounts
The scoring models do not consider race, color, national origin, sex, marital status, or age.
How can I increase my credit scores? First of all, be wary of solicitors promising credit repair if yours isn’t very good. Many often defraud consumers who are already financially vulnerable, and make their situations worse. Take the time to know just how your credit file is looking. Your scores can sometimes be increased over the short run by fixing errors and information that is sometimes duplicated. Speak with your mortgage advisor to determine what could be changed. Here are some tips to increase your score over the long haul:
- Pay your bills on time. Late payments and collections can have a serious impact on your score.
- Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.
- Reduce your credit-card balances. If you are “maxed out” on your credit cards, this will affect your credit score negatively.
- If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score. As a rule of thumb, lending institutions commonly like to see 4 open lines of credit. The majority of lenders like to see a credit history of 2 years with two of those accounts. If in doubt, check with your mortgage advisor. We have loan programs that allow you to qualify with alternative credit sources such as good utility bill history and rent payment history.
- Check your credit file for inaccuracies and derogatory information. Inaccuracies can be removed, and there are often ways to negotiate with creditors to expunge derogatory information. Ask your mortgage advisor for more details.
Does paying off delinquent accounts always improve my credit?
Not necessarily! In general, past due balances are a killer, and paying them off has a positive effect. Although the credit item will show as paid, the late payments and delinquencies will still remain on your credit file and affect your credit. Sometimes, paying these debts can make things worse, because most items remain on your report for 7 years from the date of last activity. That doesn’t mean that you shouldn’t pay the debt. You will want to negotiate with the creditor on how the debt will be reported to the credit bureaus.
What if I don’t have any credit or credit scores? In order to receive a FICO score, one must have at least one credit account opened longer than 6 months and an account that has been updated to the bureau in the last 6 months (some credit grantors do not report credit history to one or more of the bureaus). Although over-use of credit cards can get people into debt trouble, using 1 or 2 credit cards wisely is a good way to establish credit history. If you can show your banker that you have a history of paying your bills on time, such as utility bills, rent and insurance, they may grant you a credit card. If not, they may be willing to grant a ‘secured’ credit card, backed by your savings account to establish credit. By using a credit card for some of your purchases, and making the payments on time, you prove your ability handle credit well. Some loan programs allow non-traditional credit in the absence of FICO scores. Please speak with your mortgage advisor for more information.
What if there is an error on my credit report? If you see an error on your report, you’ll need to report it to each credit bureau that has record of the error. All three bureaus have procedures for correcting information promptly. Your mortgage advisor can provide information to help you correct errors as well. 
Where can I find more information on credit? You can view or download the booklet from the Fannie Mae Foundation by clicking on the picture on the right.