Understanding the Differences in your Credit Reports

August 21, 2012 - Howie

While credit card offers change all the time, the system that our credit is based on is quite structured and definitely not something that changes from quarter to quarter. Personally, I’m fascinated with the ridiculousness and confusion around finance and credit.

Understanding credit and credit reports certainly isn’t as bad as understanding tax law, but let’s face it some plain English would be nice.

So here’s a few things to keep in mind:

Credit reports (and scores of course) differ in format and content with each bureau
You can get a report for FREE each and every year.
If your report has incorrect information, you are entitled to file a dispute and get it fixed (this is the main reason you should check your report as 10% of all reports have errors) — Sample Dispute Letter
Green is usually good, yellow is a potential bad thing, and red on your report is typically bad
Read up on some credit facts and myths

And now for some resources … here are links to each of the bureaus websites and explanations of their reports. Spend the 10 minutes looking at each one of them. I bet you’ll learn a thing or two:

Experian’s Explanation of a Credit Report – Sample Experian Credit Report
Sample TransUnion Credit Report
Equifax doesn’t have a sample on their site; here’s a recent Equifax credit report example from elsewhere.

Keep in mind that while your reports don’t display your score, whether based on FICO or VantageScore numbering model, the reports are solely what make up your credit score. You’ll notice that your income is never shown on your credit report … that’s because income is not a factor in credit score. Creditor’s use it as a determination of how much credit to extend to you if they decide that your income and credit file meet their requirements.

When it comes to scores, we always want scores over 700 on FICO and over 800 on VantageScore before we think about applying for any premium travel rewards cards. If you’re looking for a loan / mortgage, you’ll want those scores about 740 on FICO and closer to 900 for VantageScore which will ensure not only being approved, but receiving the lowest possible interest rates!

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chemist661

I just completed refinances on 2 of my rental properties on 8/31. Rentals are alot more difficult than getting a loan on the house that one lives in (owner occupied). My FICO’s were the following: 804, 788, 782. Mortgage lenders use the mid bureau score (mine was Experian) as one major factor to determine your interest rate. I qualified for the best rates due to my score. Underwriting had zero issues with my loan. (it does not hurt being at the same govt employer full time for nearly 20 yrs )
A while after my mortgages got recorded, I applied for 3 CC’s on 8/12. (2 Citi AA @50K, 1 US Bank (olympics promo–33K bonus) and all three got approved. My wife also applied for 3 cards and got 2 approvals so far. (Starwood AMEX, US Bank (also Olympics promo 33K). She is maxed out with Citi so she should get an approval with recon. (have Citi cancel regular Citi Hilton card and move its CL to the new Hilton Reserve–will say that Hilton Reserve is much better product). Our scores dropped to the mid 700′s but it does not matter since we have no loan needs other than churning CC’s . We have NO debt (I have mortgages on my rentals but my wife’s house (primary residence) & all our cars are PAID for!).
Bottom line: Like Rick says, your credit is a major asset!!
We paid our bills ON TIME in spite of me being in the hospital for 2 weeks in Dec 2011/Jan 2012 & being home for nearly 5 months on medical leave after the hospitalization. (I had Stage 4 head/neck cancer).

J.

Chemist: As an aspiring rental property owner (and a current CC-er w/good Ficos), thanks for sharing your details, and I really hope all is going well with you (sounds like it is: “had”). I often think of Rick’s great line/advice about credit being one of our most important assets.

unterkopf

We’re about to refinance our home mortgage. We have great credit (me: FICO score in low 800s, wife around 780-ish), we have oodles of equity in the home, great incomes, stable employment, no debts, always pay all bills on time, solid history, all the good stuff.

We’re looking at a home refi loan (primary residence) within the next 2 weeks.

Now I’m agonizing a bit over whether or not there would be any impact at all on the rate we get for the refi if my wife applies for one credit card in the next couple days, before the refi starts (we know we shouldn’t open or close any cards while the loan is in process, which will probably take 2-3 months). There are some good offers out there now that will expire by the time the loan process finishes (I’ve already bagged my limit for now, but the wife has many opportunities available) and I’m oh so tempted to have her grab just one quickly before we freeze everything for the loan.

Any thoughts on the likely impact of doing that?

chemist661

Lenders usually pull another credit report before closing to make sure there are no major changes in credit. (debt to income, etc). I have heard of people getting car loans and with the increased DTI, not qualify for the loan.
When there are two people on the loan, they will price the loan with the person with the lower score–they do not average it. I wouldn’t chance your wife applying for a CC, especially since she has the lower score. Her score is very decent but her score will drop due to the inquiry and then further decrease when the new account hits the reports. Best not to take the chance in this day.
Lenders are HYPE sensitive in this day. In the old (2006) days, applying for a CC within 6 months of getting the loan just needed an explaination. These days, lenders are more strict! One tip is to pay your credit cards before the statement “cuts”. That is before the bill is generated. Lets say you have 3 cards with $100 statement balances each–the lender will use the min payment (say $20 each) as monthly debt even though you pay the whole thing off every month. They did that with me but $20/month per card adds up if their DTI is close.
I waited until a few days after my loans “recorded” before applying for CC’s. In a few months, there will be some more CC deals.
Bottom line: I wouldn’t chance having your wife applying for a CC just before a refi. When you loan is approved and closes (records), then have her apply for multiple CC’s.

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Understanding the Differences in your Credit Reports

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