Kelly L. Zitlow

Over the next few months I'm going to periodically tackle and share some of the many mortgage questions I receive regarding Credit~ Credit Scores, Credit Repair, Credit Disputes, Reestablishing Credit etc.  In this week's Arizona Mortgage Update we'll start with the Basics of Credit.

Where does credit information for mortgages come from?

Credit information comes from the credit grantor which can be credit card companies, auto and home lenders and retail stores. Information is also obtained from court records which will include bankruptcy filings, tax liens and judgments.

What is a credit score?

A credit score is a numerical representation of a statistical likelihood to repay credit that is extended. Credit scores are derived from a propriety model developed by Fair, Isaac & Company (FICO).  Scores range from 350-850 and are used by many different industries when determining whether to lend or extend credit to an individual. In some cases the credit score itself will impact the rate or terms of the credit being extended.

How is a credit score calculated for a mortgage?

The scoring model factors all of the credit information provided by the credit grantor such as date the account was opened, payment history, balance, credit limit, the proportion of balances in relation to the credit limits on revolving accounts, collections, bankruptcy, judgments and tax liens.

A credit score is a "snapshot" at a specific moment in time and can change within minutes depending on the information reported to the credit agencies. Older derogatory information will have less of an impact on a credit score and a more recent negative item such as a collection account or a 30 day late payment will have a greater impact on the score.

One very important item to know!!! Credit scores will vary depending on who is pulling the credit. I often have people tell me they pulled their credit and know their scores but when we pull a mortgage credit report the scores vary widely. Here's the reason why~ when an individual pulls their own credit a personal scoring model is used. When a mortgage, auto or credit card company pulls credit the scoring model varies by the type of industry pulling the credit and they are all slightly different.

How long do accounts (negative and positive) stay on a credit report?

Credit accounts: Accounts paid as agreed remain for up to 10 years. Accounts not paid as agreed remain for 7 years.
Collection accounts: Remain for 7 years from the original inception date of the collection
Public Records: Chapters 7 & 11 remain for 10 years from the date filed. Chapter 13 -open or dismissed - remains for 10 years from the date filed. Unpaid tax liens remain indefinitely. Paid tax liens and judgments remain for up to 7 years from the release date.

Many in our Arizona market are preparing for buying a house after a short sale, foreclosure or bankruptcy and don't know where to start to reestablish their credit profile. Feel free to share this information to your past and future clients.

The holiday season is fast approaching… Are you ready? I'm not! I'll be working on that this weekendJ

Enjoy our "winter" weekend.

~Kelly