Home Buyer's Recession Survival Guide - Credit Score Confusion

There are quite a few people that are totally befuddled by the prospect of understanding their credit scores and to be fair, it isn't a field that is exactly easy to understand: Such as why is the FICO not out of a hundred, or some other logical number range instead of a low of around 300 and a high of about 900. We'll just have to leave that for the geniuses at Fair Isaac who dreamed this all up, as it really makes no sense to any sane person.

Your FICO is comprised of:

35% - punctuality of payment (less than 30 days past due) in your credit history
30% - the percentage of available credit line that you're using up. Less is better.
15% - length of your credit history
10% - the types of credit used
10% - how many searches have been done on your report lately.

The median score is a surprisingly high 720, but that doesn't mean that anywhere in the mid to upper 600s is going to get you turned down for much. You just won't be able to take advantage of the really good deals on rates that save you money.

The aspect that really confuses many people is why they have three different FICO credit scores with the three different consumer reporting companies, Experian, TransUnion and Equifax. Each one has its own algorithms for calculating the score and you might be a healthy 650 at one and an automatic turndown 580 at another. There are common threads that run through all three of your credit reports and they all reward the same type of behavior as good and punish what is generally seen as the bad. Yes, it would make a lot more common sense if there were only one credit bureau and one score, but this is a free enterprise system and whoever wants to start their own credit bureau is free to do so, irrespective of the utter bewilderment of the average mortgage holder.

Another confusion arises from the fact that you can stiff your landlord for months and months of rent, kick in a few doors and walls, leave them holding the bag, and in the vast majority of cases this will never appear on your credit report. Most landlords are individuals who don't have access to filing derogatories. Rent, along with medical and utility bills (which don't go into collection) are generally treated as non-traditional credit and are only considered by the FHA. Therefore a person who has ripped off landlord after landlord and never paid a doctor's bill in their lives can still have good, even perfect credit! Now that is strange!

Each credit bureau is obligated to provide you with a completely free credit report once a year. When you apply for these reports, you'll have to understand what the data means. The credit score is the "Executive Summary" of the report. It's a quick snapshot of your credit worthiness. The rest of the report details how you pay your bills, what levels your bills are at, if you've had any collection actions or worse. Make sure that you recognize all the accounts on your report. With identity theft being what it is lately, there are a lot of people being surprised at finding loans taken out in their names.

If you find anything out of the ordinary, you will have to file to correct the report. It is important that you file with all three, as it seems none of the credit bureaus like to talk to each other. It can be a lugubrious process but the damage to your long term credit is going to be a lot worse if you do nothing.

Some people who are not intimately familiar with how the FHA determines its loan approvals might be afraid that the black marks they have on their credit will automatically get them blown out. That is not necessarily true. The FHA can overlook some fairly serious credit problems and still approve your application. Some of these problems include:

- A Chapter 7 bankruptcy is OK as long as it's been over two years since the date of discharge. With strong documentation and some really good explanations, the time can be less than two years.

- A Chapter 13 can be just one year out in repayment as long as you can show that in the past twelve months you've been making your payments on time. The same rules apply to Credit Counseling Programs.

- If your bankruptcy can be proven as due to factors outside of your control, such as job loss, divorce, or a death in the family, the underwriter can just toss the time restrictions away and consider your application regardless of how long ago the bankruptcy was executed.

- Foreclosure is a bit more serious to the FHA as that's the business they're in. They usually like to see a full three years. On HUD insured loans, the three year calendar starts ot from the date you went into foreclosure but from the date the house is sold out of foreclosure. That can be a substantial difference of time.

- A default or delinquency on a Federal loan such as school loans is OK as long as it has since been paid off or you are currently undergoing a time payment plan with the Government and have kept up your side of the deal.

As you can see, the FHA is looking for good will on your part rather than perfect and stainless credit. They are in the business of dealing with people who have run into credit problems for a variety of reasons and it is their federal mandate to assist people just like that... and you!

Read The Entire Survival Guide

Home Buyer's Recession Survival Guide - The Subprime Meltdown
Home Buyer's Recession Survival Guide - The Advantage Of Renting Over Buying
Home Buyer's Recession Survival Guide - Why Rent? Why Not?
Home Buyer's Recession Survival Guide - Five Common Mistakes House Buyers Make
Home Buyer's Recession Survival Guide - Get Your Home Sold Quickly & At Your Asking Price
Home Buyer's Recession Survival Guide - Improve Your Home's Value And Sell It For More!
Home Buyer's Recession Survival Guide - Learn The Value Of Curb Appeal
Home Buyer's Recession Survival Guide - Home Staging: Valid Selling Technique Or Fraud?
Home Buyer's Recession Survival Guide - Before You Go House Shopping
Home Buyer's Recession Survival Guide - The Home Condition Checklist
Home Buyer's Recession Survival Guide - Getting A Mortgage From Different Types Of Lenders
Home Buyer's Recession Survival Guide - What To Do After You're Turned Down
Home Buyer's Recession Survival Guide - New Initiatives To Help Get You Approved
Home Buyer's Recession Survival Guide - Isn't HUD An Old Paul Newman Movie?
Home Buyer's Recession Survival Guide - Jumbo Isn't As Huge As He Once Was
Home Buyer's Recession Survival Guide - FHA Q&A
Home Buyer's Recession Survival Guide - The FHA's Credit Requirements Vs. The Bank's
Home Buyer's Recession Survival Guide - Your Credit Score And Your Mortgage
Home Buyer's Recession Survival Guide - Credit Score Confusion
Home Buyer's Recession Survival Guide - Keeping That Credit Score Nice & High
Home Buyer's Recession Survival Guide - Minimize The Interest Payable
Home Buyer's Recession Survival Guide - What Is PMI & Why Do I Care?
Home Buyer's Recession Survival Guide - The LIBOR-COFI-COSI Alphabet Soup
Home Buyer's Recession Survival Guide - REO: Get Rich Quick Or Just Waste Time?
Home Buyer's Recession Survival Guide - Obtaining Flipping Money
Home Buyer's Recession Survival Guide - Consider The Additional Costs
Home Buyer's Recession Survival Guide - What Is Escrow?
Home Buyer's Recession Survival Guide - Tips To Avoid Foreclosure
Home Buyer's Recession Survival Guide - The Changing Value Of Your Mortgage Dollar
Home Buyer's Recession Survival Guide - How To Ride The Interest Rate Spikes
Home Buyer's Recession Survival Guide - Can't Get A Mortgage? What A PITI!
Home Buyer's Recession Survival Guide - Calculating Your Closing Costs
Home Buyer's Recession Survival Guide - Mortgage Broker or Mortgage Banker?
Home Buyer's Recession Survival Guide - The Magic Of A Down Payment
Home Buyer's Recession Survival Guide - A Refinance Checklist
Home Buyer's Recession Survival Guide - Refinancing With Bad Credit
Home Buyer's Recession Survival Guide - The Self-Employed Mortgage Maze
Home Buyer's Recession Survival Guide - VA Loans
Home Buyer's Recession Survival Guide - Offset & Reverse Mortgages
Home Buyer's Recession Survival Guide - The Reasons To Not Buy An Offshore Retirement House
Home Buyer's Recession Survival Guide - How To Pay Less Than $500 A Month
Home Buyer's Recession Survival Guide - Five Easy And Cheap Tips To Save Big $ On Energy

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