Is good credit necessary to buy a home? It is not essential to have a good credit to purchase a home. However, a lender will require a higher interest rate, points and/or down payment for individuals with less than excellent credit. Additionally, if you have very poor credit, it may not be possible to obtain a loan from traditional lenders, even with a large down payment and/or at high rates. What is a credit report? The credit payment history of any person who has ever applied for a credit card or personal loan is recorded in a file or report. These files or reports are maintained and sold by consumer reporting agencies ("CRAs"). Each report contains detailed information about the income, debt, and credit payment history of the particular consumer. What is the Fair Credit Reporting Act ("FCRA")? The FCRA is a set of regulations enforced by the Federal Trade Commission. It is designed to promote accuracy and ensure the privacy of the information used in consumer credit reports. What rights does the FCRA provide? Pursuant to the FCRA, you have the following rights: You have the right to receive a copy of your credit report. The copy of your report must contain all the information in your file at the time of your request. You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes. Any company that denies your application must supply the name and address of the CRA it contacted if the denial was based upon information supplied by that CRA. If you have an application for credit denied because of information supplied by a CRA, you have the right to receive a free copy of your credit report. Your request must be made within 60 days of receiving your denial notice. You have a right to add a summary explanation to your credit report if a dispute is not resolved to your satisfaction. Can a borrower purchase a home without a credit history? Yes. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Our loan professionals can discuss these options with you. What is credit scoring? Credit scoring is a system creditors utilize to determine whether to extend credit to a particular borrower. Using a statistical program, creditors compare information about the borrower to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that predicts the likelihood of repaying debt and subtracts points for each factor that suggests the likelihood of delinquency on debt. What are credit bureau scores and how do lenders use them? A credit bureau score is a number, based upon your credit history, which represents the possibility that you will be able to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details. Why is credit scoring used? Credit scoring is based on real data and statistics, so it usually is more reliable than subjective methods. It treats all applicants objectively. Subjective methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals. How is a credit scoring model developed? To develop a model, a creditor selects a random sample of its customers or a sample of similar customers. This sample is analyzed to statistically identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company. Scoring models generally evaluate the following types of information in your credit report: Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections or declared bankruptcy; What is your outstanding debt? Many scoring models evaluate the amount of debt you have as compared to your total credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score; How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances; Have you applied for new credit recently? Under many credit models, having an excessive number of inquiries/requests for credit may negatively impact your score. In short, though it will take time, paying your bills on time, lowering your outstanding debt relative to your available credit and limiting your inquires for credit will improve your credit score. How can I correct an error in my credit report? Under the Fair Credit Reporting Act, both the Credit Reporting Agency ("CRA") and the organization that provided the information to the CRA, such as a bank or credit card company, have responsibility for correcting inaccurate or incomplete information in your report. If you identify an inaccuracy in your report, write to both the CRA and the information provider. In your letter clearly explain the reasons why you believe the item is inaccurate. Enclose a copy of a recent credit report with the item circled as well as copies of any documents that support your position. Send your letter by certified mail, return receipt requested, so you can document what the CRA received. Keep copies of your dispute letter and enclosures. CRAs must investigate the items in question, usually within 30 days, unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the information provider. After the information provider receives notice of a dispute from the CRA, it must investigate and review all relevant information provided by the CRA and report the results to the CRA. Disputed information that cannot be verified must be deleted from your file. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the information provider verifies its accuracy and completeness and the CRA gives you a written notice that includes the name, address, and phone number of the provider. Also, if you request, the CRA must send notices of corrections to anyone who received your report in the past six months. If an investigation does not resolve your dispute, ask the CRA to include your statement of the dispute in your file and in future reports. Many providers specify an address for disputes. If the provider then reports the item to any CRA, it must include a notice of your dispute. How can I improve my credit score? Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change, but improvement generally depends on how that factor relates to other factors considered by the model. Only the particular creditor can explain what might improve your score under the particular model used to evaluate your credit application. To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances and not taking on new debt. Contact Numbers for the Credit Reporting Bureaus Experian 1-888-524-3666 Equifax 1-800-685-1111 TransUnion 1-800-916-8800