Ralph R. Roberts - Flipping Houses For Dummies

To ensure success at obtaining loans, become proactive. Check your credit report every three months or so, correct any errors, and take steps to improve your credit rating, as instructed in the following sections. No irregularity is too small to correct.

The following sections show you how to obtain, review, and correct your credit report. I also explain how to improve your credit score.

The Federal Trade Commission (FTC) has made it mandatory for the three major credit reporting companies to provide you with a free credit report once every 12 months. To obtain your free credit report, submit your request online at www.annualcreditreport.com .

If you already obtained a free credit report this year and want something more recent, you can order a credit report from any or all of the following three credit reporting agencies (prices and terms vary):

Equifax: www.equifax.com

Experian: www.experian.com

TransUnion: www.transunion.com

When you receive your credit report, inspect it carefully for the following red flags:

Addresses of places you’ve never lived

Aliases you’ve never used, which may indicate that someone else is using your social security number or that the credit reporting agency has mixed someone else’s data into yours

Two or more social security numbers, flagging the possibility that information for someone with the same name has made it into your credit report

Wrong date of birth (DOB)

Credit cards you don’t have

Loans you haven’t taken out

Records of unpaid bills that you either know you paid or have good reason for not paying

Records of delinquent payments that you either know you paid on time or have a good excuse for not paying on time

Inquiries from companies with whom you’ve never done business (when you apply for a loan, the lender typically runs an inquiry on your credit report, and that shows up on the report)

Check your credit report once a year to keep track of your creditworthiness over time and to stay on top of any false information or signs of financial fraud.

An address of a place you’ve never lived or records of accounts, loans, and credit cards you never had may be a sign that somebody has stolen your identity. Yikes! Contact the credit reporting company immediately and request that a fraud alert be placed on your credit report. For tips on protecting yourself against identity theft and recovering from it, check out Identity Theft For Dummies, by Michael J. Arata, Jr. (Wiley).

To give your credit rating an air of objectivity, credit reporting agencies often assign you a credit score that ranges roughly between 300 (you have never paid a bill in your life) and 900 (you borrow often, always pay your bills on time, and carry no huge balances on your credit cards).

Your credit score determines not only whether you qualify for a loan but also how much you’re qualified to borrow and at what interest rate. A high credit score lets you borrow more and pay less interest on it. A high score can also lower your home insurance, auto insurance, and life insurance rates.

Credit reporting agencies rely on one or more statistical models to determine your credit score. One of the most popular models is the Fair Isaac Company (FICO) rating system. The credit company assigns numerical values to particular pieces of data in your credit history, such as the length of your credit history and the various types of interest you’re paying. They then plug these numbers into the statistical model, which spits out your credit score. It’s basically a numbers game that weighs the data on your credit report in the following manner:

35 percent of the score is based on payment history.

30 percent is based on outstanding debt or how much you currently owe.

15 percent is based on the length of your credit history or how long you’ve been borrowing.

10 percent is based on recent inquiries on your report (whenever a lending institution requests a report).

10 percent is based on the types of credit, such as mortgage or credit card interest.

If you have a credit score of 700 or higher, pat yourself on the back. You’re above average and certainly qualified to borrow big bucks at the lowest available rates. Anything below about 680 sounds the warning sirens. This number is the point at which lending institutions get out their magnifying glasses and begin raising rates and denying credit. If your credit rating dips below 700, take steps to improve it, such as these:

Dispute any erroneous items on your credit report. Disputing a claim doesn’t always result in a correction, but you can request to have a paragraph explaining your side of the story added to your report.

Apply for fewer loans and credit cards. When you apply for a loan or credit card, the lending institution typically orders an inquiry that shows up on your credit report. Evidence that you’re applying for several loans or credit cards in a short period of time can make you appear financially desperate.

Pay off your credit card balances or at least pay off enough so that the balance is 50 percent or below your available credit limit. If you have enough equity in your home, you can refinance to consolidate high-interest credit card bills into your mortgage payment, but avoid the temptation to begin racking up more credit card debt after refinancing.

Avoid credit enhancement companies on the web that claim to provide seasoned credit within 90 days. Law enforcement authorities are shutting down these sites regularly. Legitimate credit counselors can help you repair your damaged credit, but it takes some work and belt tightening. Quick fixes are typically fraudulent fixes.

Numerous smartphone apps are available for monitoring and improving your credit score, including Mint Money Manager, Credit Karma, and apps from the credit reporting firms TransUnion and Experian.

After you apply for a loan, resist the urge to make any life-changing decisions that negatively affect your current financial status. Major changes can undermine your efforts to secure a loan. When you’re applying for a loan, follow the advice of our friend and colleague, loan officer Marc Edelstein, with his Ten Commandments When Applying for a Mortgage Loan:

1 Thou shalt not change jobs, become self-employed, or quit your job.

2 Thou shalt not buy a car, truck, or van (or you may be living in it)!

3 Thou shalt not use charge cards excessively or let your accounts fall behind.

4 Thou shalt not spend money you have set aside for closing.