CREDIT HISTORY

BE PREPARED - IT PAYS TO KNOW!

Credit history is a major factor considered by mortgage lenders when assessing homebuyers AND determining interest rates and terms. Lenders normally get three credit reports before finalizing a mortgage. You should know what information is going to be used by the lender to assess your credit-worthiness BEFORE you apply for a mortgage, a credit card or bank loan.

Information provided by credit reporting agencies can not only determine the rate of interest and terms of your mortgage, but, in some cases, can be decisive in preventing you from getting a mortgage at all. Even if you have never made a payment late or overextended yourself, a credit history supplied to a lender by a credit reporting agency can harm you if it contains incorrect or misleading information.

Long before applying for a mortgage you should make sure that the information contained in credit reports is accurate. Wise consumers check up on their credit histories periodically to make sure that they contain no incorrect information. In some cases where a credit report indicates a judgement against you or other action by a creditor you may want to provide an explanation and/or documentation which explains a particular situation.

WHAT IS A CREDIT REPORT?

Credit Reporting Agencies are private companies that collect information about bill payments, credit card and debit card usage and other aspects of the credit histories of individuals and businesses. When you apply for credit - a credit card, car loan, mortgage or other form of credit - a lender normally uses up to three reports from three different sources to determine whether to lend you money or extend you credit.

The three major credit reporting agencies in North America are Equifax, Experian and TransUnion. You can order your report from each. Having your credit report is the only way to ensure accuracy and alert you to problems related to fraud or identity theft. Correcting inaccuracies can be time-consuming but necessary.

To get a copy of your personal credit report you can contact:

1. EQUIFAX

Equifax Information Service Center,

1-800-685-1111, P.O. Box 740241, Atlanta, GA 30374-0241.

Equifax Information Service Center Canada

1 800-465-7166 P.O. Box 190 Montreal Quebec H1S 2Z2

Via the web at www.equifax.com/

2. EXPERIAN

Experian Information Solutions, Inc.,

1-888-397-3742, P.O. Box 2002, Allen, TX, 75013.

Via the web at www.experian.com/

3. TRANS UNION

Trans Union Corporation

1-800-888-4213, Post Office Box 1000, Chester, PA 19022.

Trans Union of Canada

1 800 663-9980 201-709 Main Street West Hamilton Ontario L8S 1A2

Via the web at www.transunion.com/

WHAT TO CHECK FOR IN YOUR CREDIT REPORT.

A lender looks at a credit report to assess you as a credit risk. This is what they look for:

• When did you get your first credit card or bank loan?
• When did you get your most recent card or loan?
• How many credit cards do you have and what balances do you carry?
• What is your history of late payments (30, 60 or 90 days or more) or bounced checks?
• Are there any judgements or tax liens against you?
• Have any of your accounts been sent to collections or have you filed for bankruptcy?

Typically a lender looks at your credit performance in the two years prior to your application. Look for yourself; make sure the report is accurate:

• Is your personal data correct?:
• Is your name spelled correctly?
• Is your Social Security Number or Social Insurance Number correct?
• Is your address correct?
  

• Incorrect data can result in information about someone else being included in your credit report.
• Carefully check all the information about your credit for accuracy.
• Are there reports of late payments that you know were made on time?
• Are there reports of bounced checks due to bank srrors?
• Mistakes happen! Make sure the other information about your accounts and payments are correct.
• If you find information that is inaccurate, contact the credit reporting agency by certified mail, with a return receipt requested. Include documentation to correct the incorrect entry or entries. Lenders have 30 days from receipt to correct or confirm a challenged entry. Don’t take anything for granted. Make sure you receive a copy of the corrected report.
• When requesting your credit report be careful about the information that you provide. Your name, date of birth and social security number are the basic information needed to create your credit report. You are not required to provide your driver’s license number, employer’s name or previous addresses. If you want to see the same report that a potential lender has seen, provide only the information you have provided to the lender.
• Make SURE that information about credit card accounts is accurate. A mistake here can just mean poor reporting or it can indicate fraudulent activity.
• Are there reports of bounced checks due to bank errors?

If you have trouble understanding your credit report, your real estate broker may be able to arrange for you to have your credit report reviewed by an experienced lender.

HOW TO AVOID CREDIT CARD AND IDENTITY FRAUD.

Credit fraud and Identity Theft are serious crimes. Protect yourself. Guard your personal data. Do not give out your Social Security number over the phone unless you know the company you are dealing with and have initiated the call.

Don’t give such information over a public phone where you could be overheard. If your mother’s maiden name is not likely to be secure, choose another password.

Keep official documents including passports and birth certificates in a locked box at home or in a safety deposit box and carry with you only the credit cards and other documents that you need.

Shred old bills before you discard them. A thief who has sensitive information like a credit card number, Social Security number and password can go as far as changing the mailing address on your account, applying for cards in your name, and building up debts that you are unaware of. Checking your credit report can reveal such scams. If you do find evidence of credit card fraud notify your creditors without delay. Change your passwords and close down fraudulent accounts immediately.

HOW TO ENSURE A GOOD CREDIT REPORT.

Because the best terms and interest rates are provided for individuals with the best credit history, you should make sure that your credit report is the best it can be.

It is not enough to have an unblemished record. For example, if you have not had credit before you may find it difficult to get a loan or mortgage. Even if you do not like to purchase on credit as a rule, if you are contemplating a major purchase which will require a loan it would be wise to establish credit by applying for a credit card account or installment loan and making all payments on time. Two to four credit cards are considered a good sign in terms of credit management.

Pay all your bills on time. Late payments are a huge no-no with lenders and can knock down your credit scores. Bill payments are considered "late" for credit reporting purposes when they are 30 days overdue. If you make payments by mail make sure that you mail your payment early enough that it reaches its destination on time. Some bills and statements tell you what “on time” means, including time to travel through the mail service as well as through the company’s accounting department. Your payment MUST arrive before or on (this is cutting it close) the due date.

Have a checking account in your name. Keep it balanced and don’t bounce checks. If you have difficulty establishing credit because you haven’t had credit before, make sure that you pay household bills on time, so that this payment history can be used as proof of your credit-worthiness.

Keep your debt ratios between 20 and 30 percent, i.e. your consumer debt should be less than 30 percent of your monthly income.

A large number of credit inquiries can raise a warning flag, a sign that you may have recently extended your credit obligations. Every time a creditor checks your credit, an inquiry is placed on your credit report. A flurry of activity can be erroneously interpreted as an indication that you have recently extended your credit obligations and thus make getting credit more difficult. If some of the credit inquiries on your record are due to your own interest in your credit report, provide an explanation to any lender who may view your report.

Use your common sense. Cards with lots of room on them may be viewed as potential debt and cards that are at the maximum indicate that you are a less than desirable credit risk. If you have stopped using a credit account and do not plan to use it in the future, close the account. Make sure the creditor notates the account “closed at consumer’s request”.

THE TIME TO PAY ATTENTION TO YOUR CREDIT IS ALL THE TIME!

Credit reporting agencies normally keep information on your file for seven years. Lenders normally look at the past two years. It goes without saying that you should keep your credit in good shape at all times but if you have experienced problems and have bad credit you can take measures to improve the picture. Pay bills on time, reduce your debts, and build up your savings.

It takes time to establish good credit and you need to pay attention to this well before making a major purchase. If necessary, get help from a financial advisor. Federal, state and provincial governments as well as many non-profit agencies provide credit counseling to assist individuals to get out of debt and establish good credit.

CAN YOU GET A MORTGAGE IF YOU HAVE BAD CREDIT?

If you are in a situation where you need a loan and have bad credit – a history of late payments, judgements against you, or even bankruptcy, there are still options. “Sub-prime” (or damaged) credit may be available from lenders who are willing to take a greater risk in return for higher returns. If you have bad credit but can demonstrate reasonably stable employment, fully documented income, assets and liabilities when applying for a mortgage for a single family owner-occupied home you should be eligible for a sub-prime loan.

Be prepared to explain the situation that resulted in late payments or other debt mismanagement and to show what you have done to prevent the situation from recurring in the future. Be aware that the terms will be tougher and the interest rate higher for a sub-prime loan than if you had a stellar credit record.

Make sure you shop around with several lenders to take best advantage of a competitive lending market. Just because you are a “bad risk” do not jump at the first lender willing to give you a mortgage. You could end up overpaying and exacerbating an already difficult situation.

IN CONCLUSION:

Good credit is important for anyone contemplating a home purchase. You need to know what your credit report looks like, verify its accuracy and take steps to fix a “bad credit rating” now! The time to make sure that the information provided to a potential mortgage holder is accurate and presents you as a good loan candidate is well before making an application.

Significant incorrect information can appear in your credit report – a result of something as simple and innocent as a clerical error or as complicated and malicious as identity theft and the fraudulent creation of credit accounts in your name without your knowledge. Checking your credit report should be part of your plan for maintaining your financial health.

This paper is intended for informational purposes only. Nothing contained herein constitutes legal, financial or other professional advice. Transmission of these materials is not intended to create, and receipt does not constitute, any relationship of any kind between the provider and the recipient. Some of these points may not apply in your area. Different term and conditions may vary from state to state and province to province. All articles, text and photographic material presented here is for the use and pleasure of the recipient only.