Written By: Glenn Michaels, Op-Ed Writer
Most lenders use your credit score to determine the rate and if they will lend at all. Some lenders have a minimum credit score in order to extend credit. Some lenders use the credit score to determine the rate that a borrower will pay. The lower the credit score the more a borrower should expect to pay. The higher the credit score more favorable terms are offered.
The three main credit bureaus, Trans Union, Expedia, and Equifax, all score each and every one of us. Each credit bureau scores a little differently depending on the information they have. Therefore, when there are three different credit scores available the middle score is the decision score that will be used. If there are two credit scores then lenders will use the lower of the two scores as the decision score.
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The Fair Debt Reporting Act requires credit bureaus thirty (30) days to investigate any consumer complaint or dispute. If the credit bureau is unable to substantiate the dispute the credit bureau is required to remove the disputed item or must mark the account as a disputed account. Many scoring models do not put disputed accounts into their scoring matrix.
Any or all late payments can lower a credit score 60 to 80 points depending on the severity of the late payment. If the account is disputed the credit score will not be impacted. However if the credit bureau does investigate the consumer dispute and finds that the consumer is incorrect they will then adjust the score after the completion of the investigation.
Timing is a big issue when obtaining a credit score. All companies that report to the credit bureaus do so about once a month. The report can be almost any day in a particular month. Obviously no one knows when the reporting information will be reported, and if a borrower is late on an account it may or may not be reported when the credit report was pulled.
Credit scores pay particular attention to the maximum utilization and maximum capacity of an account. Many financial institutions were decreasing the maximum line amount versus the amount owed. This reduced borrower’s credit scores without the borrower’s knowledge.
An example of what was happening to many people is below:
A borrower has an account with a bank. The bank gave the borrower a line of credit of $20,000.00. The borrower used the line sensibly and paid each and every month as agreed.
The borrower has used approximately $12,000.00 of the credit line. The bank now comes along and decreases the credit line to $15,000.00 but the borrower owes $12,000.00 and now is approaching maximum utilization of the credit line even though the borrower had previously more utilization of the credit line. This has happened to many unsuspecting borrowers.
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The best way to boost your credit scores is to show more utilization of an account. Therefore if you have used up a lot of the line bring the balance owed down. If by chance you are able to bring the balance down to zero do not close out the account. A line with a zero balance shows maximum utilization and the credit scores will improve. If you close out the account with a zero balance the credit scores will worsen because there is no utilization of the line of credit.
Everyone on an annual basis should obtain a copy of their free credit report. The report should be carefully reviewed and any errors discovered, and any disputed items should be disputed.
Recently I reviewed my free credit report and found that several home addresses that were shown on my credit report were addresses of companies where I worked previously. A letter was sent to each credit bureau to correct my credit profile.
About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
