Credit Scores Education Month is a month-long campaign sponsored by the Consumer Bankers Foundation and the Leadership Conference on Civil Rights Education Fund. The campaign was developed with mostly low- and middle-income Americans in mind to inform consumers about their credit and the importance of actively taking responsibility for maintaining its health and educate them about the important steps they can take to establish and maintain good credit. These include paying bills on time, keeping credit card balances as low as possible and resisting the urge to open up more credit cards than are needed within a short period of time.

Many people do not know what their credit score is, how it is calculated or what constitutes a good credit score. According to a survey conducted by Opinion Research USA, more than 70% incorrectly identified a credit score of 600 as “average” or “above average.” Those who wish to learn about their credit score are allowed one free credit report per year under the Fair and Accurate Credit Transaction Act.

Affordable Financial Services urges everyone who is thinking of applying for a mortgage to get a credit report first and then take a look at their credit score. Many people believe that checking your credit score will hurt your ability to get a loan, but that is not true. It doesn’t hurt to check your credit score, but it does hurt if you don’t know your score.

On January 19, 2011, the Federal Housing Administration announced more stringent lending requirements. One of the requirements asks for borrowers with credit scores below 580 to leave higher down payments with the lender. The FHA sought these requirements to protect itself from rising defaults and stave off the need for a taxpayer-funded bailout of the agency.

Many borrowers do not want to have the same problems they had during the subprime mortgage mess when they lent money to borrowers they knew were not creditworthy and were unable to pay back the loan. Affordable Financial Services offers niche products for those who wish to take out a loan but have less-than-perfect credit, as well as debt consolidation services to help those pay off their debt more easily, thereby helping them improve their credit score.

For more information, call 1-888-500-0282 or visit http://www.affordable-financialservices.com.

TransUnion LLC predicts that mortgage delinquencies will decline to 4.98% by the end of this year, compared to 6.21% by the end of this year. The delinquency rate peaked at 6.89% in the fourth quarter of 2009, as lenders tightened underwriting standards, according to the WSJ article. However, TransUnion also said it is seeing an increase in delinquencies 60 or more days overdue on their mortgages, going above 2%.

A decrease in mortgage delinquencies could lift the economy and the real estate market in general. The U.S. Census Bureau recently announced that the unemployment rate inched up to 9.8% and, while pending home sales shot up 10.4% in October, new home sales fell the same month by 8.1% and existing home sales declined by 2.2%

TransUnion also predicts that credit card delinquencies — an important gauge of future losses for lenders — will continue to decline, albeit slightly. Borrowers who are 90 days or more delinquent on one or more of their credit cards is expected to reach 0.75% by the end of this year, but will fall to 0.67% by the end of 2011. Credit card delinquencies are lower than mortgage delinquencies in part because lenders have more ways to control potential losses, such as reducing customers’ lines of credit.

Obtaining a credit report is a great asset. It tells you everything about your credit history — which credit cards you hold, how long have you held each account, the balance and status of each account and whether you are late on payments and, if so, by how many days. By checking your credit report, you can verify the accuracy of your report and dispute any details you may believe are not true. These reports are available from the following credit reporting agencies: Experian, Equifax and TransUnion.

The Home Buying Institute strongly advises that homeowners get a credit report before trying to get a house. Those who have good credit histories will have an easier time obtaining a loan than those with bad credit histories. Those who fall into the latter category, The Home Buying Institute says, should work on improving their credit score. Some ways to do this include paying bills on time, keeping credit card balances low, making sure your debt does not exceed 20% of your personal monthly income and limiting the number of loans or credit cards you apply for.

It doesn’t hurt to check your credit score. After all, what you don’t know about your credit score can hurt you.

In addition, the number of cardholders past due by 90 days or more fell to 0.92% in Q2 2010, down from 1.17% last year. The numbers show that, despite the economy, borrowers are making a conscious effort to pay off their balances and keep their credit cards in good standing.

Those who continue to pay down their debt will see some benefits, such as a higher credit score, a better chance to receive a home loan at a reduced rate and lowering their credit risk. It is good to see today’s consumers looking to reduce their debt. Now, if we could only get the government to do the same thing.

Based on a recent survey, up to half of employers eliminate potential job candidates with low credit scores. Though some 20 states have introduced recent legislation to limit employers’ use of credit reports, employers still are allowed to check prospective employees’ credit files as long as they get their permission.

Hiring managers claim poor credit raises a red flag. Some believe these candidates may be at greater risk for theft from the company or bribery from outside sources. Others feel financial problems may indicate a lack of responsibility, inadequate judgment or questionable character.

According to recruiting experts, here are some red flags on your credit report that could cost you a job:

• Liens — show that you haven’t responsibly paid off debt or negotiated a settlement

• 100% Credit Utilization — indicates you’re in over your head and can’t stick to a budget

• Bankruptcy/Foreclosure — suggests you bail on large projects or lack long-term visibility

• Recent late fees — signal financial stress or trouble budgeting

• Significant Activity — frequent opening or closing accounts shows you’re desperate for cash or aren’t good with money

Recently, some government officials have stated that checking potential employees’ credit reports is unfair, particularly in light of the recent recession. However, the practice is unlikely to change anytime in the near future.

If you have concerns about your credit score and that it may affect your chances of obtaining employment, visit www.vrtmg.com/lfigueroa for more information.

• Credit Card Utilization. If your existing credit cards are maxed out, you may be more of a risk than someone who has the same exact credit score but not maxed out.

• Recent Hard Inquiries. If you have several recent inquiries, it suggests that you were denied or you did get the credit and it wasn’t enough to meet your needs.

• Age of Oldest Trade. The ability to maintain accounts in good standing speaks volumes about the borrower. Lenders like to see a long history of open accounts, which, in many cases, means more than two or three years. In that short amount of time, you probably haven’t been laid off, or experienced a major life event. On the other hand, if you have 10 years of credit history and maintained your accounts, it says a lot about your level of responsibility and financial management.

• 30-Day Delinquencies. If you have a habit of paying late regardless of your score, be prepared to suffer the consequences when it comes to credit approval. This is why you should ALWAYS pay bills on time.

• Presence of a Mortgage. Mortgages denote stability and suggest that your credit is strong enough to support a high dollar loan.

• Presence of an Installment Loan. Just like a mortgage, installment loans demonstrate the breadth of experience you have with accessing and managing credit. Installment loans show a level of planning not displayed in credit cards since installments have a fixed monthly payment, which often requires more discipline and budgeting, both of which are often a plus.

Signing up for the FES Protection Plan will automatically show you how you rate in each of these categories and how to further improve your credit score. To see whether you qualify for a loan, visit http://www.vrtmg.com/lfigueroa.

It is expected that even more American consumers will join them since it can take months before missteps hurt a person’s credit score. According to the Labor Department, about 26 million people are unemployed, which means more people will likely begin to face financial problems such as foreclosure.

In the past, lenders approved applications based on the applicant’s credit score, without taking into account the applicant’s ability to repay the loan. Today, lenders are imposing more stringent requirements on the applicants.

FICO’s data is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the current recession, only 15 percent of consumers with active credit accounts fell below 599, according to data posted on Myfico.com.

However, there are signs of hope. In recent years, consumers with a credit score of 800 or above have increased, now at 17.9 percent from the historical average of 13 percent. This suggests that more people have learned to cut spending and pay down their debt in response to the recession. The percentage of individuals with credit scores between 650 and 699 have shifted favorably as well.

It gets worse. Citing complaints from bankers that an applicant’s credit score isn’t good enough, changes are underway in how credit scores are calculated and applied, which will affect millions of homeowners. At the Risk Management Association’s annual conference, Kenneth Phelan, Fannie Mae’s chief risk officer, said that 60-62% of households will own their own homes — lower than the expected 69% before the housing bubble burst.

Someone who undergoes foreclosure but had a solid credit score before the start of the housing crisis could see their score falls more than 15% under the system used by VantageScore, a scoring mechanism involving the nation’s top three credit bureaus: Experian, TransUnion and Equifax.

Under VantageScore, those who pay their bills on time will be considered subprime borrowers, meaning they will have a more difficult time obtaining a loan from a bank. Banks are reluctant to lend money to subprime borrowers because they are afraid the borrowers will be unable to pay them back; many lenders who catered to subprime borrowers have since gone out of business.

In addition to credit scores, banks are taking other factors into consideration such as geography and the overall economy. So, someone who moves to an economically depressed area may have trouble buying a home, even if they have good credit.

Another solution offered by Tony Hughes, senior director of Moody’s credit analytics group, was to lower people’s credit scores during an economic boom and raise them during times of economic distress. In good times, people appeared to have pure credit scores, so they were able to borrow against home equity and pay off credit cards, but when home prices fell, the equity disappeared.

At the bottom of a recession, with a recovery in sight, according to Hughes, credit scores would be raised to reflect the idea that someone buying a home would be paying it off in an improving economy with home values increasing and a lower chance that they would lose their job. A person who lived in a distressed area and paid a loan during the recession could receive extra points.

The tragedy of this housing crisis is that, even those with perfect credit scores will be punished. Economists predict it could take years before people’s credit scores improve. Loan modification is considered the lesser of two evils because it does less damage to your credit score than foreclosure does. Bankruptcy is not good because it will appear on your report for the next seven to nine years.

In the 1960s, Fair Isaac and Company started working on a system that lenders could use to evaluate the likelihood of receiving repayment on loans. Prior to that, it was really a matter of trusting an individual to be a man of his word. Fair Isaac sought to take human error out of the equation with a reliable system that could determine whether or not consumers were truly worthy of credit, and thus FICO was born.

Credit scoring has an enormous impact on a borrower’s ability to purchase a home. It can mean the difference between getting a good interest rate and the home of their dreams, and whether they will even be able to apply. For this reason, it is important for borrowers to understand the credit scoring process, and to know what their credit score is when they look to obtain mortgage financing.

According to the myFICO Web site (www.myfico.com), 90% of the largest banks use FICO scores for credit decisions. A 100-point difference in your FICO score can mean paying an additional $40,000 in interest payments on a 30-year loan of $300,000.

What the credit scoring model seeks to quantify is how likely the consumer is to pay off their debt without being more than 90 days late on a payment at any time in the future. Credit scores can range between a low score of 350 and a high of 850. (Anything 700 or above is considered “good credit.”) The higher the client’s score is, the less likely they are to default on their loan.

Credit score minimums have risen for mortgage applicants, even for those seeking FHA loans. It is imperative that applicants get their financial affairs in order and make sure they pay their bills on time. Improving your credit score will not only get you your house, but will also save you thousands of dollars over the life of the loan.