Credit Score Counseling from Delta Home Loans of Grass Valley, CA

Your Credit Score

Five Factors of Credit Scoring
Payment HistoryPaying debt on time and in full has the greatest positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Delinquencies that have occurred in the last two years carry more weight than older items.	35% Impact
Outstanding BalancesThis factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit at least 2-3 months prior to trying to purchase a home.	30% Impact
Credit HistoryThis portion of the credit score indicates the length of time since a particular credit line was established. A seasoned borrower will always be stronger in this area.	15% Impact
Type of CreditA mix of auto loans, credit cards and mortgages is more positive than a concentration of debt from credit cards only. You should always have 1-2 open major credit card accounts.	10% Impact
InquiriesThis percentage of the credit score quantifies the number of inquiries made on a consumer’s credit within a twelve-month period. Each hard inquiry can cost from two to 25 points on a credit score, but the maximum number of inquiries that will reduce the score is ten. In other words, 11 or more inquiries within a six to twelve-month period will have no further impact on the borrower’s credit score. Note that if you pull your credit report yourself, it will have no effect on your score.	10% Impact
	100%

What it means to You as a Prospective Home Buyer

Why Your Credit Score is So Important

The credit scoring model seeks to quantify the likelihood of a consumer to pay off debt without being more than 90 days late at any time in the future. Credit scores can range between a low score of 300 and a high score of 850. The higher the score, the better it is for the consumer, because a high credit score translates into a low interest rate. This can save literally thousands of dollars in financing fees over the life of the loan.

Only one out of 1,300 people in the United States have a credit score above 800. These are people with a stellar credit rating that get the best interest rates. On the other hand, one out of every eight prospective home buyers is faced with the possibility that they may not qualify for the home loan they want because they have a score falling between 500 and 600 ... This is where we can help!

Dealing with Credit Challenges

Unfortunately, a person with a bad credit score is often in this position because he or she lacks the discipline to pay bills on time. Of course, there are exceptions where unforeseen circumstances come into play, such as health complications, or loss of employment.

There are a few things that may be able to bring your score up so that you can secure a better interest rate on your mortgage loan.

• Distribute debt from revolving credit.
• Transfer outstanding balances to new accounts

Disputing Errors on the Credit Report

If you are in the process of reviewing your credit reports, the first thing to do is make sure that the information contained within the reports is correct. In June 2004, The U.S. Public Interest Research Group published the results of a survey it conducted involving 200 adults in 30 states to test the validity of credit reporting. Their findings were as follows:

• Twenty-five percent (25%) of the credit reports contained errors serious enough to result in the denial of credit;
• Seventy-nine percent (79%) of the credit reports contained mistakes of some kind;
• Fifty-four percent (54%) of the credit reports contained personal demographic information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect;
• Thirty percent (30%) of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.

SOURCE: U.S. Public Interest Group Research; One In Four Credit Reports Contain Errors Serious Enough To Wreak Havoc For Consumers, US PIRG Press release, 06/17/04