Credit reports are often used by creditors to determine how much of a risk a person would be to lend to. These reports contain information about a persons financial dealings, with some other limited personal information.
There are a number of people who could potentially view your credit report, including the government, banks and other creditors, and insurance companies. It is also possible for employers, both present and prospective, to view your credit report. This is common in professions where they are worried about company theft or embezzlement.
In fact almost anyone can see your credit report providing that they are able to offer an actual financial reason why they should be able to see your credit report. Each person is also eligible to receive three free copies of their credit report every year, one from each of the different credit reporting agencies.
Since there are so many potentially important people who could looking at your credit report, it is important to identify any problems and try to fix them as soon as possible. This can not only make it easier to receive a loan or mortgage, but can also effect many other parts of your life.
At first glance, a credit report can seem very confusing, but all of the information in a credit report can basically be divided into four sections.
Personal Information: Credit Reports are prohibited from containing information about race, religion, or sexual orientation, but they do contain a great deal of other identifying information.
This includes the persons name, aliases, current addresses, previous addresses, Social Security Number, Date of Birth, current employer, past employer, and information about husbands or wives.
Credit Information: As the name implies, credit reports contain a great deal of information about your credit history. This includes mortgages, credit card debt, unpaid debt, debt that has been sent to a collections agency, and some utility information. Also, in the case of loans it has information such as the type of loan, length, cosigners, and a two year payment history.
While the credit information is usually very inclusive, it can not include bankruptcies that are more than 10 years old or other debt that is older than 7 years.
Information from Public Records: This includes any state or country government records, including information on bankruptcies, tax liens, or other civil judgments. It can also include child support.
Recent Credit Report Requests:: This section lists the people who have requested your credit report over the last year, although it goes back 2 years for employers. Sometimes, too much activity can raise a red flag to lenders and may also be an indication of identity theft.
For the homeowner, there are a number of advantages to home ownership, many of which are financial and tax related.
One of the biggest benefits of owning a home, as opposed to renting, is that every month you are actually putting money towards the value of the home, instead of simply giving it to a landlord. This process is referred to as building equity in a home.
Equity is the difference between the value of the home and the principal of the mortgage. As the principal of the mortgage decreases, the equity increases, however equity can also be influenced by increases or decreases in the value of the home.
As an example, lets say that someone purchases a $120,000 with a $12,000 down payment. This means that the principal of the mortgage is $108,000 and they have $12,000 in equity.
Now, lets assume that in five years, the value of the home has increased to $150,000 and they have paid the principal down to $80,000.
Even though the homeowner has only paid $40,000 towards the value of the home, because the homes value has increased, they have $70,000 in equity.
The equity is computed by taking the value of the home($150,000) and subtracting the amount that is still owed on the mortgage($80,000.)
It is important to remember that the equity of the home is not real money, in that it is not something you can physically hold. In order to actually earn the equity, the home must be sold and if the value of the home were to decrease, then equity would go down.
It is a common misconception that a homes value is always going to significantly increase, which was fueled by rapid increases in home prices during the 1990’s, when a homes value would sometimes increase by over 20% every year.
While technically, you do not receive your equity until you sell your home, a number of lenders offer home equity loans and home equity credit lines.
A Home Equity Credit Line is much like a credit card, which has a credit limit based off of the homes equity. In most cases, the interest rate will also be very high, like a credit card, but the homeowner is not obligated to use the Home Equity Credit Line.
A Home Equity Loan, on the other hand, is more like a second mortgage. The homeowner will receive a single lump sum, which is based off of the equity of the home. They then have to make monthly payments, which is in addition to their monthly mortgage payments.
With the rapid increase in home values that took place during the 1990’s, many lenders began offering very large home equity loans, but with subprime mortgage rates. As a result, many homeowners took out these loans and began using them for things like new cars, vacations, or college tuition. Some even began piggybacking their down payment loans, which is when the homeowner takes out a mortgage and a separate loan for the homes down payment at the same time.
Then, the housing bubble burst, home values decreased, which resulted in a lot of people owing a lot more than their home is currently worth. Also, many of those who had received a subprime mortgage faced increasing mortgage payments, which further compounded the issue.
Deciding to take out a Home Equity Credit Line or a Home Equity Loan should not be taken lightly, because if the homes value were to decrease, the equity would also decrease, with the homeowner still being responsible for paying for the home equity loan.