Credit Frequently Asked Questions
How does divorce affect consumer credit?
What should I do if I believe I have been a victim of credit fraud?
What is the Fair Credit Reporting Act?
What is a credit report?
How long does information stay on a consumer credit report?
How consumer credit reports are used?
Mortgage Questions
Why should I buy a home?
Should I choose a fixed rate or adjustable rate loan (ARM)?
When does it make sense to pay points?
How can I buy a home with a small down payment?
What is the process for applying for a loan?
What types of loans are available?
Q) How does divorce affect consumer credit?
A) A divorce does not supersede the original contract with the creditor, and does not release any legal responsibility on any accounts. Each creditor must be contacted individually to seek their legal binding release of the obligation. Only after that release will the original contract cease to obligate payment. At that time the credit history can and should be updated accordingly. It is often recommended that a personal credit check be done to ensure that the credit report has in fact been updated with the correct information.
Q) What should I do if I believe I have been a victim of credit fraud?
A)There are several types of credit fraud, many of which involve the illegal use of your credit card numbers, or setting up new accounts in your name. If you suspect ANY improper or illegal activity is taking place, immediately contact each of the credit grantors with whom you have credit.
Q) What is the Fair Credit Reporting Act?
A) The Fair Credit Reporting Act (FCRA) is the federal law regulating credit reporting companies. This law protects consumers rights, such as the right to review and contest information in their credit profiles. It also specifically defines who can access the information in a credit profile, and how you are notified of this activity. You may obtain a copy of the FCRA from the Federal Trade Commission.
Q) What is a credit report?
A) A consumer credit report is a record of an individual's reported credit history. There are currently 3 major credit data collection companies or "bureaus" each operating independently of the other. They are Equifax, Transunion and Experian. These companies collect and compile the data sent to them by creditors who choose to use their service. A creditor can select the bureau or bureaus they wish to report to, some even use all three. For these reasons an individuals credit report can vary widely from one bureau to another. The credit bureaus then disseminate this information to authorized entities when requested. Thus a credit report could be one, two, or three single credit reports or "merged" depending upon how it was ordered. A complete review of an individuals credit report requires the 3 bureau's or a "3 merged" credit report.
The typical consumer credit report includes four types of information:
1.Personal information: your name, spouse's name, current and previous addresses, Social Security number, year of birth and current and previous employers. This information is gathered from credit applications, so its accuracy depends on filling out the forms completely and consistently each time credit is applied for.
2.Credit information: specific information about each account such as the credit limit or loan amount, balance, monthly payment and payment pattern during the past several years. This information comes from companies that extend and report credit. Credit reporting is optional on the part of the creditor
3.Public information: federal district bankruptcy records; state and county court records tax liens and monetary judgments; and, in some states, overdue child supports.
4.Inquiries: the names of those who obtained a copy of your credit report for any reason. This information comes from the credit-reporting agency, and it remains on record for up to two years, consistent with federal law.
Q) How long does information stay on a consumer credit report?
A) Federal law specifies how long negative information may remain on a credit report. Most negative information must be erased after seven years. This includes late payments, accounts that the credit grantor turned over to a collection agency and judgments filed against you in court. Credit reporting agencies use the date of original delinquency or, in the case of public records, the date of filing to determine when negative information is deleted. Positive information remains on your report indefinitely.
The length of time a bankruptcy remains on your credit report depends upon which type of bankruptcy you file. Chapters 7, 11 and 12 remain for 10 years. A Chapter 13 bankruptcy (in which you repay part or all of your debts under a court-approved payment plan) remains on your credit report seven years.
Inquiries made on your credit history remain on your credit report between one and two years, depending on the type of inquiry.
Q) How consumer credit reports are used?
A) Federal law specifies who may obtain a copy of your credit report and how it may be used. Specifically, you may request a copy at any time, but no one else may legally review your report unless they do so in connection with one of the following:
- Your application for a government license
- A credit transaction or other legitimate business need
- Employment purposes such as hiring or promoting
Q) Why should I buy a home?
A) Home ownership is often called the "American Dream" because of the pride that comes with owning a place you can personalize and call your own. In addition, buying a home is one of the most stable and solid investments providing tax benefits and allowing you to build equity.
Q) Should I choose a fixed rate or adjustable rate loan (ARM)?
A) Fixed rate loans have a stated interest rate that does not change over the life of the loan, whereas the rates on adjustable rate loans are linked to an index and change as the index rate changes. Many mortgages, such as a 3/1 ARM, start as a fixed rate loan for the first three years and then convert to an adjustable rate for the remainder of the loan. Adjustable rate loans have the possibility that the interest rate could increase. However, along with assuming some risk, an ARM will generally start with a lower interest rate. This could be very attractive for borrowers who do not plan on keeping the loan for the full term.
Q) When does it make sense to pay points?
A) Points are a one-time fee that are used as a financial tool in a variety of ways, commonly to lower the interest rate. Points are defined as a percentage. One point equals one percent of the loan amount. Example, your loan amount is 100,000 one point would be 1000. There are many uses for paying points besides lowering the interest rate, such as obtaining a lender credit to help defray closing cost.
Q) How can I buy a home with a small down payment?
A) There are many loans available to help you move into a new home without the usual 10-20% down payment. Even if you are a first time home buyer, or are unsure about your credit history, you could still qualify for special 15-year or 30-year loans with little to no down payment, at very competitive market rates.
Q) What is the process for applying for a loan?
A) The loan process is different for every person, and the truth is that each loan is unique. However, there is a pattern to the loan process, beginning with the application and ending with home ownership. Individual circumstances are considered based on underwriting guidelines, looking for a financial vehicle that suits the individual needs.
Q) What types of loans are available?
A) A wide range of products to meet your financing needs, from 30-year fixed rate mortgages to adjustable rate mortgages and home equity loans. Along with the various types comes all different qualifying criteria such as stated income or no employment verification.
