Frequently Asked Questions About Credit Scores - Credit FAQ

In response to the economic crisis that came to a head in 2008, we recently launched a new blog to answer consumer questions about credit scores (as they relate to mortgages and home buying). Shortly after the blog was announced, the questions came rolling in! Some trends have already emerged, and we would like to present those trends in this list of credit score FAQs.

This is a hot topic among home buyers, but it will become even more popular in 2009 and beyond. See question #3 to find out why.

1. Where do my credit scores come from?

This is a question we get two or three times a week, so I'm happy to answer in this FAQ list. Your credit scores come from Experian, TransUnion and Equifax. These are the three companies who maintain credit data on consumers in the United States. Each company can produce a credit report on you, which is basically a record of your financial history (your debt, your payment history, etc.).

These reports are put through a scoring system to produce your credit score. So you actually have three different scores -- one from each of the reporting companies mentioned above.

With that one answered, let's move on to the next credit question on the FAQ list:

2. Why is credit so important when buying a home?

When you apply for a mortgage loan, the lender will review your finances from every possible angle. They will verify your current income and debt, and they'll also check your credit. Most lenders will either use a merged score that averages the three mentioned above, or they'll just look at two out of three credit scores. This gives the lender some idea of how responsible you've been in the past, from a financial perspective.

So a good / high score will help you get approved for a loan, and it can also help you get the best interest rates (which means a lower monthly payment). This is why it's such a hot topic among home buyers.

Moving right along, let's tackle the next credit score question on the FAQ list:

3. How has the economic crisis affected all of this?

This is a common question about credit in the current economy, and for obvious reasons. As a result of all the foreclosures we saw in 2007 and 2008, a lot of lenders have bad loans on their books. So as we go forward into 2009, they will be less inclined to make new loans until they figure out how to recoup some of their losses and prevent future ones from happening.

In addition, there are new regulations on subprime lending (giving loans to people with bad credit). Because of these and other factors, home buyers will need higher credit scores to get mortgage loans in 2009 than they needed in the past.

This brings us to another popular question about credit that people often ask:

4. What can I do to maintain a good credit score?

In a nutshell, you can keep your score high just by being financial responsible. This means paying your bills on time, managing your debt well, and using credit cards responsibly (i.e., don't have too many cards and don't max them out). Your history of bill payments accounts for about 35% of your score, so if you have a pattern of late payments it can do serious damage to your credit, especially if those accounts are sent to a collection agency.

5. How do I find out what my score is?

Because you have three of them produced by three different companies, you have to request your scores through those companies (Equifax, TransUnion and Experian). In most cases, you will have to pay for the information, but it's not expensive. By law, you can request your credit reports once a year for free ... but there is no such law for your actual scores.

You can also find package deals that include all of this stuff for one price. You'll find some website recommendations on our credit reports page.

Get Answers to Your Credit Questions

Do you have questions about credit reports and scores? If so, check out new Q&A blog over at the Home Buying Institute. It's a free service. Here's the web address:
http://www.homebuyinginstitute.com/help