Consumer credit reports can contain 'red flags' for lenders
BY PHIL MULKINS World Action Line Editor
Wednesday, December 05, 2012
12/05/12 at 6:38 AM
You've pulled one of your credit reports, but now what? These ratings supposedly reveal your credit worthiness to lenders as they consider loaning you money or issuing you another credit card.
BankRate.com names six red flags in credit reports that scare off lenders.
Late payments: Delinquencies are "huge influences" on credit scores, said Stephen Brobeck, executive director of the Consumer Federation of America. They make up 35 percent of your FICO score. Notations that you have paid bills 30, 60, or even 120 days late are "very damaging" to your credit, he said.
Another big one is payment history - how long ago "late pays" were made. The more recent, the more it hurts your credit, says Evan Hendricks, author of "Credit Scores & Credit Reports: How the System Really Works, What You Can Do."
High debt-to-credit limit ratios: Credit scores consider this ratio two ways. The balance on a revolving account compared to credit available from the account. If you carry a $1,000 balance on a credit card with a $5,000 credit limit, the debt-to-credit ratio is 20 percent. The second way is calculating the total of all your debts on revolving accounts against your total credit lines on those same accounts.
"In the ideal world, you want ratios under 10 percent and certainly no more than 40 percent," Hendricks said. "But if you're running a $2,000 balance on a $5,000 card (40 percent), that's really going to hurt your score."
Collection activity: "When one of your accounts 'goes to collection' or one has been written off as a bad debt, it's on your credit reports and is dragging your score down," said Margo Mitchell, president and CEO of Credit Counseling Centers of Oklahoma. "It's a good idea to check your state's statute of limitations, the period of time creditors have to sue you over a contracted debt."
In Oklahoma, the statute on contracted debt is five years - see Feb. 24, 2008, Action Line at tulsaworld.com/Action022408
Judgments, liens & bankruptcies: An identity thief using, and trashing, your financial ID causes notations on your report that you have judgments, liens and bankruptcies.
Active accounts you closed: You closed a store credit card after you moved. Or you finally got around to asking your daughter to close the card account you co-signed for her when she was in college. Checking your credit reports is a way to verify such accounts are closed and the dates are correct.
Inquiries: Credit reports tell you who else has been viewing your report. Called "inquiries," they come in two flavors:
"Hard inquiries" come when you apply for new credit, fill out applications, sign paperwork and ask lenders to check your history. Such inquiries cause your credit score to take a little dip and affect your score for a year. But you'll see them on your report for two years.
"Soft inquiries" are what credit bureaus put on your report when someone reviews your credit file but you haven't asked for new credit. If you pull your own credit report, that's a soft inquiry. Lenders pulling your reports for marketing purposes are also soft inquiries and don't affect your score.
Free access to reports is law
The Consumer Financial Protection Bureau warned "specialty credit reporting agencies" on Nov. 29 that they might be violating federal law by not providing consumers easy access to credit reports.
The bureau also released a bulletin reminding the credit agencies of their legal obligation to provide a streamlined process for consumers to request a free annual credit report, said Bill Hardekopf, CEO of LowCards.com.
The Fair Credit Reporting Act requires nationwide credit reporting agencies to provide free annual access to consumers' credit reports. This applies not only to the three major credit bureaus - TransUnion, Experian and Equifax - but also to nationwide specialty consumer reporting agencies.
These latter agencies collect specialized information - employment, tenancy, medical payments and check-writing - and analyze the information for sale to third parties. Lenders make loan decisions based on information contained in these reports.
The act gives consumers the right to dispute information in these reports and the information that reporting agencies have about them. The agencies must investigate and correct any inaccuracies.
"Nationwide specialty consumer reporting agencies can have great influence over a consumer's tenancy, insurance premiums or even employment," bureau director Richard Cordray said in last week's notice. "You have a right to see specialty consumer reports too." See tulsaworld.com/CFPBspecialtyConRepts
"The bureau reminds these companies that they must follow the law and provide consumers with easy access to their free annual report," Cordray said. "If we have reason to believe that companies are not following the law, we will take action."
A credit reporting company must give a toll-free number that is easy to find in phone books and on its website. It must provide clear and easy instructions for consumers to get their reports.
Not all companies are required to give a free annual copy of a consumer's credit report, but all credit reporting agencies must provide a copy of a person's report for a fee.
The bureau compiled a list of websites called "Consumer Reporting Agencies" at tulsaworld.com/CFPBConsRepAgc
Effect of credit score on loans
A FICO 620 score is the lowest for which a loan can be issued. According to the FICO Score calculator for Oklahoma loans of $200,000 for 30-year fixed mortgages, one might expect to pay the following amounts for the following scores.
Original Print Headline: Many factors affect credit ratings
- 620: 4.466 percent, $1,009 monthly payment, $163,360 total interest over loan life 675:
- 3.494%, $897 a month, $123,071 int.
- 750: 3.105%, $855 a month, $107,647 int.
Tulsa World consumer writer Phil Mulkins wants to know which topics interest you. Call 918-699-8888, email your suggestion to email@example.com or mail it to Tulsa World Consumer, P.O. Box 1770, Tulsa, OK 74102-1770.
DAVID HOUSH / Tulsa World