Just this week the Consumer Financial Protection Bureau, (CFPB) the agency designed to protect consumers’ credit, took action against two credit bureaus. TransUnion and Equifax had created their own credit scores to mimic the FICO score that is used by banks and finance companies to determine borrower repayment behavior. Their scores can be helpful in knowing how close you are to the preferred score, but different lenders use different scoring methods to come up with the score that is used for a particular loan. Ultimately, the CFPB decided that TransUnion and Equifax were not completely honest in the usefulness of their scores, and they even charged a monthly subscription for a tool that was not accurate for the types of loans wanted. These proprietary scoring methods are not often used by lenders to grant credit.
A credit score is only a summary of the items included in your credit report to determine credit worthiness. As a consumer it is a good habit for you to become familiar with the items included in your credit report and how it affects you. You are allowed by law to view your report from each of the three credit bureaus at a minimum of once per 12 months. You can retrieve these at www.annualcreditreport.com. Of course if you are like me you can use a free service like CreditKarma.com and watch the changes to your credit report after each statement period. The drawback to Credit Karma is that it only includes items from two of the bureaus. You may have some debt that is only included in one of the credit reports and not the others. The information reported to each bureau depends on the creditor that is providing the information.
In addition to your score, the other elements of your credit report that affect your ability to borrow money are:
- Your total debt
- Types of accounts (loan vs. credit card)
- Number of late payments
- Age of accounts
If you have more questions give us a call. We are happy to help you on your way to finding your new home.