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Friday, July 31, 2009

The true purpose of credit scores

Here's another good article on Examiner.com, this one by Mary Supinger. It explains the true purpose of your credit score as well as the benefits of exercising your rights under the Fair Credit Reporting Act. Here's the article:

"Given the current state of the mortgage industry, rates may be low, but the add-ons for low credit scores are getting higher everyday.

Make no mistake; no one cares about your credit more than you do.

You are the one who must foot the bill for bad credit so it is in your best interest to listen up and take action.

Because human beings input this information into the system and because all three credit bureaus (CRAs) have various servers across the country both good and bad information can pop up on your credit report.

Thankfully, most of that information is correct. Some of that information is incorrect or true, but negative. Depending on who you speak with, up to 72% of all credit reports contain errors. This is why you need to practice routine maintenance of your credit report; because items do pop up again after they have been removed. It can be maddening until you learn how to handle the situation and use it to benefit yourself.

In my business as a loan officer, I have been an expert witness in several court actions because creditors have injured a person’s credit profile.

One of my clients was awarded over $250,000 in cash and at least another $100,000 in benefit for the refinance of their home. All this because we paid attention and fought for the rights that we are all entitled to under the Fair Credit Reporting Act.

To sum things up, all of the credit repositories must have a completely accurate reporting of an item or they are required by law to delete the item. You can use this to your advantage.

Credit scoring has been around for years and years. Car dealers and insurance companies have used them for decades. When mortgage lenders began using them for making loans in the early 90’s it set in motion the mortgage banking and portfolio lenders ability to make loans based on 'credit risk factors'.

That means that the credit score told the lender a lot of what they needed to know in determining whether a borrower would make their payments on time.

The entire purpose of credit scoring is to determine whether a borrower will have a 90 day late on any account within the next 24 months.

That’s it; plain and simple. By knowing whether that borrower is at risk, it enabled mortgage and home loan underwriters the ability to make a 'bare facts' decision out of the loan approval.

It leveled the playing field.

You will still need to prove your income and assets with most types of borrowing, but the higher your credit scores, the better the price will be for that borrowing."

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