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Young Volunteers


How Credit Bureaus Impact Your Ability to Build Great Credit Scores

Unscrambling the Credit Bureau puzzle

If someone comes into money through an inheritance, he could qualify for a mortgage with favorable terms because the money he received will enable him to obtain a better interest rate. We’ll profile the assets of a recent heir who wants to purchase a new home. He must make creditworthiness a priority because an excellent credit report generates the best interest rates. This profile demonstrates what you need to know about credit reporting.

How will his inheritance influence his capacity to buy a home? Underwriters – employees who analyze loan applications – want to determine the source of your down payment. The financial background for the inheritor will consist of recent investments, employment and his inheritance.

The inheritor received enough money to make a down payment for a mortgage. Furthermore, he can cover a few months of mortgage payments. He’s decided that he wants to be an owner instead of a renter because a home is a good investment. He wants to better provide for his wife and two young children. He wants to teach his children how to become financially literate.

Because he can cover the 20% down payment for a mortgage, he can avoid paying private mortgage insurance (PMI). Furthermore, he has enough cash flow to make several mortgage payments and enough reserves to cover an emergency. The only question that an underwriter would have stems from the fact that underwriters need to verify the source of large amounts of money in a savings account.  

At Kaimore, we give consumers the knowledge to build a credit score that offers the best interest rates. Furthermore, we provide new consumers with techniques for establishing a credit history. We provide financial strategies for people living in underserved communities. The inheritor lives in a disadvantaged community and he wants to learn how he can increase his creditworthiness after inheriting $60,000.

VantageScore and the Fair Isaac Corporation (FICO) determine your credit rating. These organizations calculate creditworthiness – the probability that borrowers will repay their debts - by generating a three digit number that ranges from 300 to 850. A credit report contains your credit history that includes the type of debt you incurred and whether you paid your obligations and whether you paid them on time.

Your three digit summarization will be generated as a FICO score or a VantageScore. This score allows lenders to quickly evaluate your creditworthiness. Everyone from banks to credit card issuers consider your credit score. Lenders describe your creditworthiness as Poor, Fair, Good, Very Good, and Excellent.

FICO establishes your creditworthiness by focusing on payment history, amount owed, length of credit history, credit mix, and new credit. While people with a Fair rating will be offered credit, they will not receive favorable terms because of their credit score. The inheritor has a Fair credit score because he recently maxed out his credit cards and he missed several payments on an auto loan. It’ll take one year to rebuild his credit score to the point where he’ll receive a much better mortgage rate.


People in the Fair category are susceptible to inflated interest rates. Lenders like to work with people in the Very Good and Exceptional categories. These borrowers will be offered the best conditions because they consistently pay their debts on time and they keep their credit limits low. Currently, the heir would be offered a rate that aligns with a Fair credit history. He wants a better credit score before he purchases a home because this will save him thousands of dollars in interest payments.

The difference between FICO and VantageScore stems from factors including the number and the age of accounts in the name of the borrower. FICO requires borrowers to have an account that is at least six months old and has demonstrated activity within the last six months. In contrast, VantageScore requires one account that needs to be open for one or two months without an activity threshold.

To establish a credit score, new borrowers can submit their rent and utility payments to the main credit bureaus. This is significant because payment history makes up 35% of your FICO score and 41% of your VantageScore. Once these categories are catalogued, the credit bureaus can generate a credit score that allows the borrower to secure a loan or a new credit card.

Borrowers can impact their credit score by paying off various financial obligations such as rent and credit cards. Borrowers need to demonstrate that they can handle multiple types of debt. This is your credit mix and it makes up 10% of your FICO score and 20% of your VantageScore. The credit bureaus want to establish how well you manage debt that consists of several different financial products.

Before you secure a loan, you need to determine the accuracy of your credit report. The three main credit reporting bureaus - Experian, TransUnion, and Equifax - collect financial information that gives lenders a creditworthiness profile. If bureaus make reporting errors, consumers can correct these mistakes by contacting the bureaus directly.

Currently, you can secure a free credit report once a week from the three credit bureaus. It’s worth your time to scrutinize these documents. A small error could add thousands of dollars in interest payments to your mortgage. It would be wise for everyone to check their credit reports a couple of times each year.  

Now that you understand what it takes to establish a FICO and a VantageScore, it’s time to make your money work for you. Some people who receive an inheritance end up in bankruptcy because they lack financial literacy. Our inheritor keeps a close eye on his finances and he seeks the advice of an advisor.

His advisor invested $10,000 in a high-yield mutual fund and the advisor reinvests dividends payments to take advantage of compound interest. The inheritor puts his paycheck into a money market account to earn an interest rate of 5.45%. He’s offered this rate because he agrees to carry a minimum balance of $1,000.

These money-generating principles apply to people both rich and poor. He invested in a mutual fund that pays high dividends and he’ll reinvest those dividends to create greater financial growth. The heir will be successful if he follows the wealth-building principles that underpin FICO and VantageScore -  he’ll pay his debts on time and he'll carry low credit card balances. These are the main guidelines that influence credit scores.

Now that the inheritor recognizes the importance of a personal budget, he'll apply money towards a 401(k) with matching funds provided by his employer. This matching limit generally falls between 3% and 6% of your annual salary. He’ll find prosperity by learning about mutual funds, bonds, stocks, and certificates of deposit. He’ll educate his children how to handle their financial responsibilities and he’ll set new goals to create personal wealth for his family.



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