Bankers mostly use the Fico Score. The higher the score the more attractive the applicant is to the bank. Because many are unaware of the differences in score, a consumer might be left thinking they have a great score right up until they need loan approval and the bank denies them.
For example, a potential property owner was looking for a home in Long Island. He started looking for properties after he ordered his “Credit Score” online and was pleased to find it was a 790. When he met with the agent he bragged about his excellent credit score and he was sure it would be a breeze to get loan approval. After viewing homes for 3 months the buyer finally went to a banker to get a pre-approval letter. While the banker was gathering information to send the letter the buyer found a property he and his wife loved. After the agent made the first offer the client got a phone call from the banker telling him his credit score was a 650 which meant he could not qualify for the loan. The buyer was shocked and did not understand the difference in score. When analyzing the credit with the banker it was clear he had some credit issues. This was very disappointing to both the buyer and the seller. His score problems would have been addressed much earlier if he had been informed that the score he needed to view was the FICO score and not the Vantage score.
This becomes quite confusing to consumers since most sites do not display in neon lights that the score being purchased may be different than the score the bank is using.
FICO
300-850
The higher the score, the lower the risk for a lender to approve funding. Anything above a 740 is considered excellent credit. Anything below a 620 is considered poor credit.
VANTAGE
501-990
Also has letter grade ratings from A-F. This could be as much as 150 points higher than Fico.
PLUS
330-830
Are offered to the public for educational purposes only. They can be twenty to forty points higher than FICO scores.
NATIONAL SCORE INDEX
0-1000
Also known as the NATIONAL RISK SCORE. The lower the score, the lower the risk. This is the reverse of the scores most of us work with today.
When buying a property one must know what threshold of score is needed to get the best rate and pay the lowest fees for the particular loan that best suits their purchase.
Visit www.northshoreadvisory.com for more information and follow @tracybecker for more credit tips.
Recently a client came to us with questions about ID theft and a very unusual situation that he experienced. Since most people would not expect this to occur I thought it is a great example to share. This was his question to us:
About six months ago I wound up having to stay in a hospital for minor surgery. Everything went well and there were no issues with my physical health, however, my credit health took a dip. I recently learned the hospital had an employee that stole and sold patients personal information including, social security numbers, addresses, etc. Last week, I found out that someone had opened three cell phone accounts in my name and took out insurance on the phones as well. What should I do to protect myself?
Identity theft is one of the most popular crimes that consumers fall victim to. The first step is to contact the cell phone company and make sure they know this is fraud. Ask them to guide you through the steps to be taken. They will also give you a fraud package or form which you will fill out and send back to them. Make sure to keep a copy in a file for yourself, jot down the names and ID numbers of all you speak to (noting what was said), and get something in writing from the creditor confirming acknowledgment of the fraud. You must also make a police
report and keep a copy with your records.
You should also order your credit reports from www.annualcreditreport.com. You are entitled to a free copy annually from each of the three major credit bureaus: Experian, Trans Union, and Equifax. By ordering these reports you will not hurt your credit score at all. When you receive the reports look through them carefully taking note of any accounts you do not recognize. At the end of the reports there will usually be a section showing “inquiries viewed by others” and “inquiries viewed by you”. The first type is the one of concern. It is a list of creditors who have pulled your credit and may have approved the opening of accounts in your name. If you see any accounts or inquiries that you do not recognize call the creditor for further investigation. It is also a good idea to call all your creditors and alert them as to what has occurred. This allows them to watch for suspicious activity and protects you from liability if the thieves have more information than you realize. There is no need to close accounts if there has not been theft activity.
You must place a Fraud Alert on your credit. Fraud Alerts are a way to let creditors know precaution must be taken before allowing the opening of credit in your name. A note will be listed on your credit profile alerting all creditors to contact you directly before approving credit. Once you place a fraud alert with one credit bureau the others will be notified automatically.
In many cases when a creditor or hospital has a breach of security like this they offer a free credit monitoring product to consumers at risk. This allows them to watch their credit daily. Most of these monitoring products offer access to fraud alert protection as well. Take the monitoring product if offered and it will guide you through listing a fraud alert on your credit. If a monitoring product is not offered you can go to any of the 3 bureaus listed below and fill out a fraud alert form directly. There are two types of fraud alerts: 90 day and 7 year extended. It is best to take the extended one for extra protection if you can. All of the bureaus offer credit monitoring products for purchase as well. If you did not get a free credit monitoring offer it is a good idea to buy your own monitoring product. This will give you continued security and credit management in case other items pop up that have not yet been reported. If you live in NY and ID theft insurance is offered with these products make sure to read the fine print since most exclude NY residence from coverage.
1. Experian: 1-888-525-6285, www.experian.com to add an alert and view your report immediately.
2. Equifax: 1-800-525-6285, www.equifax.com
3. TransUnion: 1-800-680-7289, www.transunion.com
For more information and details about ID theft and protection visit: http://www.ftc.gov/bcp/edu/microsites/idtheft/.
Also filing a complaint with the FTC may help to catch criminals nationwide: https://www.ftccomplaintassistant.gov/.
totalmortgage1 asked: Hi Tracy, My name is Patrick Merryman. I work at Total Mortgage and I am trying to get our content more widely read. I know I know you probably get a bunch of people contacting you about sharing content. This is different. We have a very talented writer name Mike Kraus who spends a ton of time and research on what he writes. I think it would benefit your blog and ours if you could share some content for us...let me know?
Hi Patrick, I’m out of town on vacation. Call me next week after Tuesday to discuss if u would like. 914-524-8300 in the office. Thnks
Q: I just moved to NYC/the U.S. and it seems I have pretty much no American credit. I am planning on buying a co-op or condo in NYC within the next two years. How can I build credit with a purchase in mind?
A: This is an excellent question and it is great that you have given yourself a few years to build credit. Getting a secured credit card is a good way to begin building credit when you don’t have any. There are many sites that offer credit cards for all types of consumers with varied credit histories. You can go to credit.com or creditcards.com and find the cards that will approve someone with NO credit history. Once you read the terms, decide to apply, and get your credit card, you can begin to use it. Try to keep your balances low and pay them off over a period of 3-5 months; showing an excellent payment pattern will certainly help.
See if you have any family or friends in the U.S. who have excellent 7 to 20-year-old credit, keep low balances, and always make timely payments. If you trust them and they are willing to add you on as an authorized user, this can be a great plus that will help you build your own credit. The older the credit, the better it will be for your scores. Being an authorized user will afford you the benefit of the old credit within 3-6 months, but you will not be responsible for the debt or account.
Once you have these two cards showing up on your credit, you can apply for a third card based on your current credit score. Buying your Fico score will not hurt your credit. Go back to the site that offers credit cards and apply for a regular card (use your current credit score category to pick the best card offer). The credit card sites offer cards based on score category as well.
Once you have 2-4 credit trade lines on your credit report, you will be
in a much better position. Try to get all these cards within the first year so that you will have the second year to allow them to season. Remember, opening and closing credit can have a negative effect on credit scores. Once you have good credit scores, you want to be careful and strategic about deciding to open or close credit. For more educational credit information, you can go to North Shore Advisory, Inc site.
Having a good variety of credit can actually increase credit scores. As a consumer, if we were going to hire a caterer would we prefer to hire someone with years of experience or the new kid on the block? Usually the answer to that question is the one with more experience. Why choose a professional with experience to manage the food at our event? The more experience a professional has the more likely they will provide better service.
This same philosophy applies to consumers with a variety of credit. Lenders want to know that the consumer they extend credit to will be able to pay it back in a timely fashion. When a consumer shows they can do well at managing many accounts of various types, over a period of time, they would be a lower risk than someone with limited credit.
How would a lender know if a consumer could handle managing many accounts if there is no history they ever did? Since statistics show that those with limited credit are at much greater risk for defaulting on a loan, the Fico score gives the consumer with a better variety extra points. This is why a consumer with a car loan, a mortgage, a few credit cards, and a student loan might very well be a better risk than someone with one credit card.
Remember, if a consumer has one account and is about to apply for a loan, runs out and opens three credit cards a month before applying, it will not immediately boost the credit scores. In most cases the situation will drop the credit scores since new credit hurts credit scores until it becomes seasoned. Consumers should prepare well in advance by building a variety of credit before applying for a loan.
With higher credit scores consumers can save hundreds of thousands of dollars over the life of the mortgage loan.
If you have any questions or need feedback on a credit report, email me at tracy@northshoreadvisory.com.
Visit our website for more information www.northshoreadvisory.com, and for more credit tips become a fan of North Shore Advisory, Inc. on facebook and follow @tracybecker on twitter.
