The credit reports of approximately 80 percent of consumers contain errors, according to an expert who spoke at a recent Silicon Valley Association of Realtors meeting in Mountain View.
Kevin Kust, a credit specialist with Continental Credit, said that if not corrected, the errors can remain on a report for seven to 10 years and undermine the client’s credit rating. A bad credit report could jeopardize a buyer’s chances of securing a home loan, he added.
Kust advised consumers to check their credit reports periodically to ensure accuracy.
“Your credit score is your risk factor,” he said.
Many mortgage lenders use FICO, the most widely known type of credit score, to determine the interest rate, terms of the loan and whether to extend credit to a consumer. FICO credit scores range from 300 to 850, with an Excellent rating ranking 700-850; Good, 680-699; OK, 620-679; Low, 580-619; and Bad, 500-579.
Kust explained how to obtain a high score in each category, assigning percentages to importance.
• Payment history (35 percent): Maintain a positive history by paying your bills on time and correcting any inaccuracies on your credit report.
• Amounts owed (30 percent): Check your revolving credit, balance and limit ratios. Secure credit cards show a revolving debt and take the risk off banks. Pay off each card to a zero balance.
• Length of history (15 percent): Maintain old accounts because they provide you with a credit history. Closing accounts can bring down your score. Use all your credit cards occasionally so that they remain active.
• New credit and inquiries (10 percent): Applying for a lot of credit before applying for a mortgage loan could indicate financial problems. FICO allows a 45-day “shopping window” with no adverse effect on your score.
• Types of credit used (10 percent): Your score is based on the mix of different types of credit and how many total accounts you have. Don’t open new accounts just to increase the types of credit you have.