Written By: Stacey Sprain, Op-Ed Writer
It’s amazing to me how few people really understand the importance of and the actual value of their credit report. Most really have no idea what credit really is and how important it is in one’s life. We see so many credit reports cross our desk with patterns of late payments, low fico scores, charge offs, collections, judgments and tax liens and it’s always frustrated me because in many cases, I don’t feel that it’s necessarily the individual’s fault.
I feel the fault lies more with our government and education outlets for not making the information more readily available with standard education and community programs. I mean how many people in the general population would know that all of these great websites, booklets and brochures are provided by the Federal Trade Commission at the FTC website where I find them? And for those persons who may not have a computer sitting in their home, how on earth would they ever be able to access this information?
I personally think homebuyer education and credit counseling should be a requirement for every single first time homebuyer who applies for a mortgage. Imagine the impact that simple requirement could have on the general population and how much different it could make with consumer credit education!
Over the years I think I’ve seen just about every pattern of credit that could exist. I’ve also heard just about every excuse for it too. I’ve seen people with over $200,000 in credit card debt accumulated, I’ve seen an individual who owed a whopping $180000 in outstanding child support that was in collection, I’ve seen one individual who had never paid a bill on time in his life but who just had to run out and purchase a $90000 automobile a month before he came to apply for a home loan… But I’ve also seen derogatory credit caused by circumstances far beyond a person’s control.
It’s those folks I tend to want to help recover the most. But regardless of reasons, whenever given an opportunity, I try to pass on my own knowledge of credit laws, rights and responsibilities so that one more person walks out into society with credit education and understanding.
An individual’s credit profile consists of personal data retrieved from public records and financial institutions who report customer account data to the major credit repositories on a monthly or quarterly basis. A credit report isn’t really even created until someone requests an actual “report” in association with application for employment or most often in association with some sort of application for credit.
An individual credit report is like a fingerprint. It’s a way to get a small snapshot of a person’s overall lifestyle by viewing where he lives now and has lived in the past, where he works and has worked in the past, how old he is, and what his overall pattern of financial responsibility looks like by reviewing public records and repayment histories on reported debts and obligations. By viewing the person’s history of financial responsibility in regards to repayment patterns on existing and prior obligations, we can assume the likelihood as to whether or not we might expect the person to be responsible with the repayment obligation connected with a home loan.
The credit report itself includes the following information: Borrower full name, social security number, birth date, current address, reported residence history, reported employment history, public records history of judgments, liens and bankruptcy, as well a the history of credit for each loan, credit card, and mortgage account that the individual has obtained and paid for the past seven to ten years. A report may also contain fraud alert messages that the consumer is able to request be placed on their credit report in cases of stolen identities. The report may also include specific explanation messages the consumer may have requested be included in their file. Also, there may be Safescan, Hawk Alert messages and other messages related to the records evaluation of the combination of borrower name, birth date and social security number. The report will also include contact information for each of the creditor’s that report and list tradelines to the report.
Each time an individual applies for any type of credit that requires evaluation of his credit report, an inquiry is generated and identified on his credit profile. When someone has multiple credit inquiries within a short time period, it may suggest financial difficulties or misuse of credit. Such situations can contribute to lowering one’s credit score and are taken into consideration when one applies for credit with each financial institution. Having a good credit profile and credit score provides a person lower interest rates on revolving lines of credit, auto loans are other personal loans - even mortgage loans in some cases.
So how does a person build a good credit report? According to the FTC, these are the best ways for a young person or an individual who has never utilized credit to build a credit report from the ground up:
- Apply for a credit card through a local store. Local stores are more likely to extend credit to people without an established credit history.
- Apply for a secured credit card. By borrowing against your own money, creditors find this to be far less risky.
- Ask someone with a good credit history to co-sign on a loan or a credit card application. By co-signing, the person is agreeing to pay back the loan if you don’t.
Next week I’ll explain the criteria that make up a “good” credit report and will point out ways to help improve credit as well as how to repair incorrect data and remove inaccurate data.
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About The Author
Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution.