By Anessa V. Cohen
Most people don’t even think about what is going on with their credit ratings in the course of their daily lives. For the most part, you shop, pay bills, and use your credit cards regularly without much thought. When the bill comes at the end of the month, you will deal with paying it.
This is not unusual. Unless you need to be approved for a new credit card, buy a new car, or take out a mortgage to purchase a house, your credit score is not the first thing on your mind.
But the minute it is time to think about buying a new house and you realize that the mortgage banks are going to give you financing based on your credit score, you’re smacking yourself in the forehead because you never thought to check what kind of credit score you have.
“Where and how are these credit scores created?” you might ask. There are three credit-reporting agencies that keep track of your credit obligations, how much of your credit you use, and whether you pay your bills each month on a timely basis.
The three credit bureaus are Equifax, TransUnion, and Experian. These agencies keep an ongoing record of your borrowing and repayment patterns. Creditors update them regularly with information about payments, late payments, or missed payments on loans or credit that they have given you.
A credit score is issued based on the track record of the credit report at hand. For instance, a credit report with no late payments and lots of credit lines would most likely yield a high credit score, making for a desirable candidate for the lender to offer new credit. In the case of a would-be borrower who had many late payments noted on his credit report, and possibly collection accounts as well, a low score would be more probable and the lender would be less inclined to offer this type of borrower new credit.
When the time comes for you to apply for a mortgage or even refinancing, the first thing a lender will probably do while taking your application is pull a combined credit report from all three credit bureaus.
If there is a record of any late payments or collection accounts on your credit report, you would be responsible to write an explanation letter as to why the lateness appears and what you did to reconcile it. If any collection accounts appear, a borrower might be responsible to reconcile those collection accounts either by paying them off and getting proof of payment or, if in error, a borrower would have to get the company who posted those collection accounts to have them removed from the credit report.
A would-be lender would use the credit report as if it were a résumé for a job. The credit report is considered a prediction of what the lender could expect if he was willing to extend new credit to this borrower.
It is not the easiest thing to keep tabs on your credit file; the best way to keep your credit file on the positive side is to make sure your bills are paid in a timely fashion each month and your payments on your obligations, whatever they may be, arrive where they should before the due date listed on any statements sent to you. Also, all the credit-reporting agencies are required by law to present a credit report for free, once a year, to any person requesting one. Take the time to request these annual reports and make sure to check them for any errors.
Keeping track of your credit obligations and how they are being reported to credit-reporting agencies is important. You never know when you might need a credit report for new credit, or even for employment. By keeping track of everything and making sure all your obligations are being paid on time, you will practically guarantee a positive credit score when you need it. v
Anessa Cohen lives in Cedarhurst and is a licensed real-estate broker and a licensed N.Y.S. mortgage broker with over 20 years of experience, offering full-service residential and commercial real-estate services (Anessa V Cohen Realty) and mortgaging services (First Meridian Mortgage) in the Five Towns and throughout the tri-state area. She can be reached at 516-569-5007 or via her website, www.AVCrealty.com. Readers are encouraged to send questions or comments to anessa.cohen@AVCrealty.com.