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FIVE STEPS TO HOMEOWNERSHIP Evaluate Your

Mortgage lenders must determine if borrowers have the willingness and ability to repay their loans. To help make this determination, lenders will consider your credit report and score. Credit records include the following information:

• Identifying information (name, address, employer, scores from the credit reporting agencies are different, it’s Social Security number, etc.) probably because of information and system differences.

• and payment history on credit cards, student By law, you are entitled to receive one free credit loans, consumer loans, car loans, etc. report from each of the three national credit reporting agencies — , and TransUnion — per year. • Any previous collections You can order them or view them immediately online • Any tax liens, judgments, and bankruptcies at www.annualcreditreport.com — after you provide information to identify yourself. With this service, • Inquiries for additional credit it is easy to check your credit report at all three agencies once a year. UNDERSTANDING YOUR CREDIT SCORE For your scores to be calculated, each of your three credit reports must contain at least one account that A credit score is generated when a credit reporting has been open for at least six months. In addition, each agency runs credit information through its scoring report must contain at least one account that has been system or model. When information on your credit report updated in the past six months. This ensures that enough changes, your credit score may change as well. Also, your information — and enough recent information — is in your score may be different at each of the main credit reporting report to generate a credit score. agencies. The score from each agency uses only the data in your credit report in that company’s system. If your

15469 mba.org/consumertools HOW YOU CAN IMPROVE YOUR CREDIT SCORE

Pay Your Bills on Time still show up on your credit report and it may show the This is the single most important thing you can do to payment history, although it will be noted as closed and improve your credit rating. Be sure to pay at least the paid. Also be aware that an account that was turned over minimum amount required by the date it is due. The to a collection agency will stay on your report for seven faster you start paying your bills on time, the quicker your years regardless of when you paid it off. credit rating will improve. You Need Credit to Get Credit Minimize Your Debt On the other hand, having a very limited Pay down high balances. Don’t charge to your can have a negative effect on a credit rating. If you credit limits. The closer you charge to your credit limits, don’t have a credit history, consider opening an account the lower your credit rating will be. and using it responsibly, making at least the minimum monthly payments. Apply for New Credit Cautiously Don’t apply for loans or credit cards unnecessarily. The Don’t Spread Your Credit Shopping Too Far more you apply for new credit, the more you may appear When you decide to shop for a mortgage lender, do so to be taking on more debt than you can handle, and the within a focused period of time. Credit model scores lower your credit rating may be. Limit your department distinguish between a search for a single loan and a store cards and finance company loans (such as car search for many new credit lines in part by the length of loans). The more department store cards or finance time over which credit inquiries occur. Note that it’s OK company loans you have, the lower your credit rating may to request and check your own credit report. This won’t be. affect your score as long as you order your credit report directly from the credit reporting agency or through Pay off and close accounts you don’t use on a regular an organization authorized to provide credit reports to basis or don’t really need, but note that closing an consumers. account doesn’t make it go away. A closed account will

Credit Score Models It is important to note that there are several factors that There are several credit scoring models used by lenders. may NOT be considered in credit scoring, including: While they may vary slightly, they are all based on the • Race same basic criteria. The factors considered in most credit scoring systems include: • Religion

• How you have handled credit in the past • Gender

• The amount of credit you have used compared to your • Marital status credit limit • Nationality • The length of your credit history • Age • The number and types of credit accounts • Receipt of public assistance • How active you are in applying for new credit

• Public records pertaining to credit Important Facts About Credit Scores No single factor, such as a previous collection or a These factors impact your score differently. For example, bankruptcy, can cause a “low” score. Credit scores in one scoring model, this is how information is weighted: improve as credit behavior improves. Recent credit • Payment history: 35 percent behavior weighs more heavily on scores than credit behavior in the past. As time passes, the relative weight • Amounts owed: 30 percent of a poor mark on your credit record diminishes. However, • Length of credit history: 15 percent there are no quick fixes. A short-term improvement will not cause a low score to improve dramatically. • New credit: 10 percent

• Types of credit used: 10 percent ABOUT CREDIT REPORTS The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are responsible for Review and protect your credit records. Before applying enforcing the FCRA. The FTC and CFPB also publish for new credit, such as a mortgage, be sure your credit information on their web sites that contain additional records are accurate. Check your report at all three major information on credit reports. These materials are available credit companies — Equifax, Experian and TransUnion — online at: annually. If you’ve been denied credit, you can always get a free credit report (regardless of whether you’ve already FTC received your annual free report). If any of your credit http://www.consumer.ftc.gov/topics/credit-and-loans reports contain inaccuracies, contact the credit agency that compiled the report. CFPB All three agencies detail their dispute processes on their http://www.consumerfinance.gov/askcfpb/316/where-can- web sites. The Fair Credit Reporting Act (FCRA) requires i-get-my-credit-score.html the agency to investigate your disputed items within 30 days. The credit reporting agency must provide you with written notice of the results of the investigation within five days of its completion, including a copy of your credit report if it has changed based upon the dispute.