Credit Repair: Understand Your Credit Reports

By Barbara Marquand
Mortgage Credit Problems Columnist

If you need to repair your credit to qualify for a mortgage, what exactly do you need to fix?

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The answer is contained in your credit reports. Three U.S. credit reporting bureaus -- Experian, Transunion and Equifax -- collect information from lenders and maintain reports about your credit history. Fair Isaac Corporation uses that information to produce your FICO, the most commonly used credit scoring model. Creditors, including bad credit mortgage lenders, use your score to help them determine whether to give you a loan.

Your credit reports include your name, address, Social Security number, birth date, and employment information to identify you. This information isn't used to determined your credit score, and it's updated when you provide information to lenders. Here's a look at what else FICO says is in your credit reports:

Items to Consider for Credit Repair

  • Credit Accounts
  • These are credit cards, car loans, mortgages, and payday loans, just to name a few. Lenders report the type of account, when you opened it, the credit limit or loan amount, the account balance, and payment history.

    Tip: Keep balances on debt as low as possible, and pay your bills on time. Late payments stay on your credit reports for years.

  • Credit Inquiries
  • Each time you apply for a loan, you allow the lender to ask for a credit report copy. Your credit reports list everyone who asked for your credit report in the last two years, including those who responded to your requests for credit as well as lenders who ordered your report to make a pre-approved offer in the mail (these unsolicited "soft" inquiries don't hurt your score).

    Tip: Too many credit inquiries can hurt your credit score. Don't apply for credit you don't need.

    Get Debt Relief Before Collection Agencies Come Calling

  • Collections and Public Record Information
  • Public record information from state and county courts includes bankruptcies, foreclosures, suits, wage attachments, liens, and judgments. Information on overdue debt from collection agencies is also included.

    Tip: Get help from a reputable credit counselor through the National Foundation for Credit Counseling if you're in financial trouble. Chapter 13 bankruptcies, foreclosures, collections, and other public record information stay on your credit reports for seven years, and Chapter 7 bankruptcies stay on your reports for ten years. Tax liens can remain indefinitely.

But don't give up on improving your credit just because the negative information stays on your reports for so long. The older those items are, the less they impact your FICO score. A late payment you made five years ago, for instance, will have much less impact than a late payment you made two months ago.

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