Laura Houle Real Estate Services

It is difficult to understand why individuals think lenders will give them credit or a decent interest rate even though they have a history of late payments, collections, charge offs (debts written off by the debtor) and even bankruptcy.

Many lenders these days rely on a credit score (FICO) when evaluating applications. Scores may be based only on information in your file at the credit bureaus or on a combination of credit bureau data and information you supply on a credit application. The way you have handled credit in the past gives a strong indication as to how you will manage credit in the future. While credit scores cannot predict with certainty how a person will act, they do provide a quick, accurate and objective estimate as to how likely you are to repay according to the terms of a loan.

Scoring programs are: Beacon at Equifax, Empirica at Trans Union and the TRW/Fair, Isaac Model at TRW. The Fair, Isaac Bureau scores range from approximately 450 to 850 points, and one needs at least 660 to qualify for a loan covering 97 to 100 percent of value.

Scoring has been around since the 1950s and credit bureau scores based solely on credit bureau data became available in the 1980s. Not all loans require FICO scoring.

Elements of a scoring model:

• Recent payment history
• The amount of credit you have access to and are using
• How long a credit history you have
• Whether you have been shopping for credit and
• Notification of collection and public record items such as liens and bankruptcies

If you have been turned down for credit, you are entitled to a free copy of your credit report. Even if you have not been turned down, it is a good idea to know your credit status and to correct any erroneous information. Your request for a copy of the report will not affect your score in any way and if there is an error, the credit bureau will investigate and respond to you within 30 days. Telephone numbers are:

• Equifax: 800-685-1111
• Trans Union: 610-690-4909
• Experian (formerly TRW): 800-682-7654

Credit items are updated frequently, so new items can pop up since a previous report. Unfortunately, repeated requests for credit reports may cause the score to drop.

Over time you may improve the information on your credit report by paying all your bills on time and using credit wisely. As derogatory data in a credit report gets older, the score will be affected less. A missed payment four years ago will not affect the score the same as a missed payment six months ago.

It is important to remember that the scoring is not done to calculate a debt ratio but is simply an indication of the consumer’s historical credit use habits.

Scores by themselves do not identify individuals as “acceptable ” or “unacceptable” customers. They are just one of the factors lenders use when deciding to make the loan. The final decision depends on the individual lender.