Four years ago, credit scoring had little to do with mortgage lending . When reviewing the credit worthiness of a borrower, an underwriter would make a subjective decision based on past payment history. Then things changed. Lenders studied the relationship between credit scores and mortgage delinquencies. There was a definite relationship. Almost half of those borrowers with FICO scores below 550 became ninety days delinquent at least once during their mortgage. On the other hand, only two out of every 10,000 borrowers with FICO scores above eight hundred became delinquent. So lenders began to take a closer look at FICO scores and this is what they found out. The chart below shows the likelihood of a ninety day delinquency for specific FICO scores.

FICO Score		odds of a delinquent account
595	2.25		to	1
600	4.5		to	1
615	9		to	1
630	18		to	1
645	36		to	1
660	72		to	1
680	144		to	1
700	288		to	1
780	576		to	1

If you were lending a couple hundred thousand dollars, who would you want to lend it to?

Imagine a busy lending office and a loan officer has just ordered a credit report. He hears the whir of the laser printer and he knows the pages of the credit report are going to start spitting out in just a second. There is a moment of tension in the air. He watches the pages stack up in the collection tray, but he waits to pick them up until all of the pages are finished printing. He waits because FICO scores are located at the end of the report. Previously, he would have probably picked them up as they came off. A FICO above 700 will evoke a smile, then a grin, perhaps a shout and a "victory" style arm pump in the air. A score below 600 will definitely result in a frown, a furrowed brow, and concern. FICO stands for Fair Isaac & Company, and credit scores are reported by each of the three major credit bureaus: TRW (Experian), Equifax, and Trans-Union. The score does not come up exactly the same on each bureau because each bureau places a slightly different emphasis on different items. Scores range from 365 to 840. Some of the things that affect your FICO scores:

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 Delinquencies  Too many accounts opened within the last twelve months  Short credit history  Balances on revolving credit are near the maximum limits  Public records, such as tax liens, judgments, or bankruptcies  No recent credit card balances  Too many recent credit inquiries  Too few revolving accounts  Too many revolving accounts

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Sounds confusing, doesn’t it? The credit score is actually calculated using a "scorecard" where you receive points for certain things. Creditors and lenders who view your credit report do not get to see the scorecard, so they do not know exactly how your score was calculated. They just see the final scores. Basic guidelines on how to view the FICO scores vary a little from lender to lender. Usually, a score above 680 will require a very basic review of the entire loan package. Scores between 640 and 680 require more thorough underwriting. Once a score gets below 640, an underwriter will look at a loan application with a more cautious approach. Many lenders will not even consider a loan with a FICO score below 600, some as high as 620. FICO Scores and Interest Rates Credit scores can affect more than whether your loan gets approved or not. They can also affect how much you pay for your loan, too. Some lenders establish a "base price" and will reduce the points on a loan if the credit score is above a certain level. For example, one major national lender reduces the cost of a loan by a quarter point if the FICO score is greater than 725. If it is between 700 and 724, they will reduce the cost by one-eighth of a point. A point is equal to one percent of the loan amount. There are other lenders who do it in reverse. They establish their base price, but instead of reducing the cost for good FICO scores, they "add on" costs for lower FICO scores. The results from either method would work out to be approximately the same interest rate. It is just that the second way "looks" better when you are quoting interest rates on a rate sheet or in an advertisement.

CLEANING UP YOUR CREDIT

Mortgage lenders generally check with three credit bureaus in order to evaluate your past payment history. Your goal in cleaning up your credit report should be to clean up each of the three bureaus. If you only work on one, this does not effect the reporting to the other bureaus.

The first step is to get a copy of your merged credit report, which shows all three of the major bureaus, Experian (formerly TRW), Equifax (formerly CBI), and Trans-Union. Most mortgage lenders will obtain data from all three of these bureaus in analyzing your credit history. The exception is that some portfolio lenders (usually adjustable rate lenders) may only review one. To make it easier for you, Credit allows you to order a Merged Report on-line. Just click on the preceding link. It costs about $29 and is delivered to you by mail in a couple of days.

There are two efforts that must be made. First, call any creditors reporting a negative and ask them to remove the negative item. Ask in a nice calm voice and do not get upset when they say no. Simply repeat your request over and over in your nice pleasant voice. If you get nowhere, then ask to speak to the supervisor. Make sure you keep a log of your conversation, noting the date, time, who you spoke to and what they said. Repeat this procedure over and over. In a high percentage of cases, it works.

Be sure to ask for a letter by mail or fax that shows the creditor is correcting the negative information. You may need this letter for two reasons. First, they may not actually make the changes. With the letter, you can appeal directly to the credit bureau and they will make the correction. Second, if you are applying for a mortgage before the changes actually hit the credit bureau’s report, your lender will need this documentation.

If you have a charge off or collection account that shows as unpaid, don’t just send them a check and pay it off. Call the creditor on the phone, explain that you have the funds to pay the account in full, and calmly explain why it should not have been reported on your credit in the first place. Then ask if they will provide you a letter deleting the account entirely from all credit bureaus if you pay off the account. Try to get them to fax it to you. As before, be sure to document all of your telephone contact and always keep a nice pleasant tone in your voice. In a large percentage of cases, this also works.

There will be cases when the creditor does not agree to remove the negative credit item. If it is an item that is definitely not yours, call the credit bureau immediately (except for Equifax, who only responds by mail). When on the telephone, do not discuss any negative items that are accurate. Do not discuss any items that may be accurate in general but have some small error in detail that you can dispute by mail. Once you confirm any accuracy at all, you cannot dispute it later by mail.

For the remaining items, you need to dispute them by mail, writing directly to the credit bureaus. Write a letter to the appropriate bureau including your name, social security number, address, disputed accounts, and account numbers. You must sign the letter. Inform the bureau that you are disputing the data as it appears on your credit report.

Mistakes on Your Credit Report

Almost every item on your credit report will have some mistake, even if only slight. Do not acknowledge any of the accuracies, but be sure to note all inaccuracies. Write next to each item something like, "not mine, not accurate, mistaken item, complete error," or whatever is most appropriate. Request a copy of the corrected report within thirty days. If they do not respond within 30 days, send another letter. In this letter you will include a copy of your dated original letter and a new letter firmly requesting they remove the disputed information. Include a cc: to the Federal Trade Commission.

Do Not Call the Credit Bureaus - Write Letters

The credit bureau may write a letter asking you to call. Do not call under any circumstances. Your phone call will be recorded and a log will be made of the conversation. Simply write back with copies of your original letters, telling them of the original date you submitted your request. Keep a file of all correspondence to and from the credit bureau and follow through continually. Do not get discouraged, as this will be worth your while.

What happens is that the credit bureaus forward your dispute to the individual creditors. who have forty-five days to respond. If they do not respond within the allotted time the item must be removed. However, if they do respond at a later date with information that documents the credit report is correct, the item will be placed back on your credit report.

Bankruptcies

For those of you who have filed bankruptcy in the past, the items that were discharged will normally show up as a charge-off or uncollected debt. You will want to write to the credit bureaus, providing a copy of your complete bankruptcy papers and request that they show the debt as "discharged in bankruptcy." This looks better and raises your FICO score. FICO sores above 680 make it easier to obtain mortgage loans.

Conclusion

You may not be able to clean up every item on your credit report using these methods, but you will certainly be able to improve the way it looks to potential creditors.