Understanding Your Credit Report

by Meiling Hunter
CMR Columnist

Before you refinance or purchase a new home, access and study your credit report as early as possible. In addition to your score, pay close attention to all of the information that it provides. Is it accurate? Not having accurate information could have a negative impact, such as a much higher mortgage rate or even denial of a home loan.

What Makes up a Credit Score?

Fair Isaac Corporation (FICO) works with the three credit bureaus (Equifax, Experian, and TransUnion) to determine your FICO score based upon complex mathematical analyses. Each of the three bureaus probably has different information about you, which means your scores will likely differ. FICO credit scores range from 300 (lowest) to 850 (highest). Generally speaking, your FICO score is broken down like so:
  • Payment History--35%
  • Amounts Owed--30%
  • Length of Credit History--15%
  • New Credit--10%
  • Types of Credit in Use--10%
For particular groups--for example, people who haven't been using credit long--the relative importance of the five categories may be weighted differently.

What's in My Credit Report?

All three of your credit reports contain basically the same information:
  • Personal Information. This includes your name, Social Security Number, date of birth, address, and employment history. These factors are used to identify you and do not affect your score.
  • Accounts. These are your credit accounts. Generally they report what kind of credit it is (home loan, auto, etc.), the date you opened the account, credit limit or loan amount, account balance, and payment history.
  • Inquiries. When you apply for a loan or a refinance, you authorize the lender to ask for a copy of your credit report. This is an inquiry.
  • Negative Items. Lenders report when you have missed a payment. Credit agencies also report when you have overdue debt owed to collection agencies, and public record information (bankruptcies, foreclosures, garnishments, etc.) from state and county courts.

How Do I Know if I Have a Bad Credit Score?

Luckily, lenders do not have across-the-board guidelines as to what differentiates a "bad credit score" from a "good credit score". When looking to refinance or purchase a new home, make sure you are caught up on all of your credit line payments and have reduced your revolving balances as much as possible. If you think you have bad credit and need help, contact a HUD-approved counselor for free advice.

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About the Author
Meiling Hunter has worked in the mortgage industry for four years. She graduated from the University of California, Davis, with a double major in Economics and Philosophy.

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