Credit Report : Adverse Credit

Adverse Credit

Adverse credit history, also called sub-prime credit history, non-status credit history, impaired credit history, poor credit history, and bad credit history, is a negative credit rating.

Adverse credit history can come under a number of different headings. It can also be known as a poor credit history, non-status credit history or impaired credit history. These terms are all used by credit companies when judging one's credit history.

When you apply for a loan, lenders, banks and credit card companies will look at your credit history in order to judge your financial credit standing. They gain this information from credit agencies. Credit agencies track your history of repaying credit and loans. They have on file your financial transactions when repaying loans or credit. They are able to use this information to tell whether you have an adverse credit history or not.

Credit agencies track your repayments on loans and other forms of credit. They keep this information on record and assign each person a credit score. If your credit score is below a certain amount, then you will be marked down as having an adverse credit history. This may mean that you are unlikely to repay your credit transaction on time or that you may miss payments altogether.

A negative credit rating is often considered undesirable to lenders and other extenders of credit for the purposes of loaning money or capital.

In the U.S., a consumer's credit history is compiled by consumer reporting agencies or credit bureaus. The data reported to these agencies are primarily provided to them by creditors and includes detailed records of the relationship a person has with the lender. Detailed account information, including payment history, credit limits, high and low balances, and any aggressive actions taken to recover overdue debts, are all reported regularly (usually monthly). This information is reviewed by a lender to determine whether to approve a loan and on what terms.

As credit became more popular, it became more difficult for lenders to evaluate and approve credit card and loan applications in a timely and efficient manner. To address this issue, credit scoring was adopted.

Credit scoring is the process of using a proprietary mathematical algorithm to create a numerical value that describes an applicants overall creditworthiness. Scores, frequently based on numbers (ranging from 300-850 for consumers in the United States), statistically analyze a credit history, in comparison to other debtors, and gauge the magnitude of financial risk. Since lending money to a person or company is a risk, credit scoring offers a standardized way for lenders to assess that risk rapidly and "without prejudice."All credit bureaus also offer credit scoring as a supplemental service.

Credit scores assess the likelihood that a borrower will repay a loan or other credit obligation. The higher the score, the better the credit history and the higher the probability that the loan will be repaid on time. When creditors report an excessive number of late payments, or trouble with collecting payments, the score suffers. Similarly, when adverse judgments and collection agency activity are reported, the score decreases even more. Repeated delinquencies or public record entries can lower the score and trigger what is called a negative credit rating or adverse credit history.

Your credit score is a number calculated from factors such as the amount of credit outstanding versus how much you owe, your past ability to pay all your bills on time, how long you've had credit, types of credit used and number of inquiries.The three major consumer reporting agencies, Equifax, Experian and TransUnion all sell credit scores to lenders. Fair Isaaac is one of the major developers of credit scores used by these consumer reporting agencies. The complete way in which your FICO score is calcualted is complex. One of the factors in your Fico score is credit checks on your credit history. When a lender requests a credit score, it can cause a small drop in the credit score.That is because, as stated above, a number of inquiries over a relatively short period of time can indicate the consumer is in a financially difficult situation.

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Credit report - meaning....

A- thru D Credit : Credit considered to be less than perfect including late payments, collections, liens, bankruptcy, foreclosure, and hard to document income or assets. Also known as "sub-prime", A- thru D credit includes anything keeping a borrower from obtaining a FannieMae or FreddieMac type loan.

Amortization : The repayment of a loan through installment payments.

Amortization Schedule : A schedule of payments designed to liquidate a debt. May be over any agreed upon period of time. An example of this would be a standard 30-year mortgage amortization wherein a borrower would make 360 equal consecutive monthly payments at the end of which the original loan would be paid in full.

Amortization Term : The agreed upon number of months or years a borrower will be making payments to liquidate an original debt.

Annual Percentage Rate : Also known as A.P.R. the Annual Percentage Rate is the cost of your credit expressed in terms of an annual rate. The A.P.R. takes into account "points" or "closing costs" that may be included in your loan amount and is often higher than your interest rate for this reason.

Appraised Value : The value assigned to a property by a licensed professional to assess its fair market value.

Balloon Payment : An inflated payment that comes due at an agreed upon time, usually at the end of the loan term.

Bankruptcy : A debtor that is judged legally insolvent and whose remaining property is then administered for the creditors or is distributed among them.

Cash Out Refinance : A type of loan wherein an existing loan is refinanced and the borrower is allowed to receive cash in addition to the amount of the home loan. The cash is considered part of the amount financed and is part of the lien against the property securing the loan.

Closing : The time at which all loan documents have been signed and a period wherein the borrower has the right to rescind has passed. A loan has closed when funds are disbursed to the appropriate parties and a lien against the property has been placed by the creditor for the amount of the "closed" loan.

Consumer Reporting Agency : Also known as a bureau, a Credit Reporting Agency tracks payment history, account activity and other relevant public records for the purposes of determining credit worthiness of indaviduals.

Credit History : A history of an individuals ability to pay their bills on time as well as any other relevant public records.

Credit Report : A report outlining an individuals credit history, public records and credit worthiness.

Documents : Disclosures and written agreements that are required for the closing of a loan. Documents are the contract upon which the terms of a loan are outlined and agreed upon.

Equal Credit Opportunity Act : Federal Law aimed at protecting borrowers from being discriminated against based upon such things as ethnicity, sex, location of property and religious beliefs.

Equity : The difference between what is owed against a property and its fair market value is the properties Equity.

First Loan : This is what most people think of when someone says mortgage. It is a loan in first position against a property that is usually the balance of the loan used to purchase a property in the first place. All other loans against the property are subordinate to this loan.

Foreclosure : Procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default in payments or terms.

Housing Expense Ratio : Also known as Debt to Income Ratio, This number is calculated by dividing all of a borrowers monthly obligations by their monthly gross income. Example : Mark has a total of $1200 in monthly bills and his gross income is $2400 per month. Therefore: 1200/2400 = 50%. Mark's Debt to Income Ratio is 50%.

Interest Rate : A charge for a loan usually a percentage of the amount loaned.

Joint Tenancy : Joint ownership by two or more persons with right of survivorship; all joint tenants own equal interest and have equal rights in the property.

Liability : Something for which one is liable; an obligation, responsibility, or debt. Examples of liability would include, a mortgage payment, a tax bill, an insurance bill, etc.

Lien : A form of encumbrance which usually makes property security for the payment of a debt or discharge of an obligation. Examples would include: judgements, taxes, mortgages, deeds of trust, etc.

Loan Origination : The beginning of the loan process. Initial contact wherein the borrower and lender agree to work together to secure a loan. Usually an application is taken and an initial quote is given. The borrower is asked to supply documents supporting the information that is included in the application and upon which the quote is based.

Loan to Value (LTV) : The Loan to Value is the percentage of what is owed against the property vs. what the properties fair market value is.

Lock : A commitment from a lender to guarantee an interest rate for a borrower for a period of time. Rate locks expire after an agreed upon time.

Mortgage : An instrument recognized by law by which property is hypothecated to secure the payment of a debt or obligation; procedure for foreclosure in event of default is established by statute.

Mortgage Banker : A direct mortgage lender. No middlemen here. A mortgage banker or lender funds loans in his or her own name and is usually more competitive than a broker in terms of "points" and "fees".

Mortgage Broker : A person who arranges mortgage loans through mortgage bankers. This person acts as a middleman and is not limited to the restrictions of having to go through only one lender. This person can "shop" your loan to get you the best rate and term available.

Mortgagee : One to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation, a lender.

Mortgagor : One who gives a mortgage on his property to secure a loan or assure performance of an obligation, a borrower.

Negative Amortization : A loan in which the interest rate and payment may change independently from each other creating the potential for the principal balance of the loan to increase rather than decrease over the term of the loan. Several variations exist and all can create problems when attempting to put a second mortgage behind a neg-am loan.

Net Worth : Net worth is the difference between an individuals assets and liabilities. Net worth takes into consideration all assets and liabilities liquid or not and can be a positive or negative number.

No Cash Out Refinance : Also known as a "Rate and Term" refinance, this is a loan in which a lender simply refinances the existing first mortgage and no other bills are paid off and the borrower receives no cash as part of the transaction. These loans are usually done to improve the borrower's interest rate and to lower their mortgage payment.

Origination Fee : This fee is the mortgage lender's yield and are also known as points.

Point(s) : A point equals one percent of the mortgage loan amount. If you were charged one point on a $100,000 loan you would pay $1,000.

Prepayment : Provision made for loan payments to be larger than those specified in the note.

Principal : This term is used to mean the amount of money borrowed or the amount of the loan.

Principal Balance : The balance of the amount of the loan that is outstanding.

Processor : A liaison between the loan officer and the funder of a loan. The processor's responsibility is to meet all of the pre-funding conditions of a loan including, gathering all documentation and the clarification of information.

Qualifying Ratio : **See "Housing Expense Ratio"

Rate Lock : ** See "Lock"

Remaining Term : The time that is left before a loan is paid in full.

Second Loan (mortgage) : A second mortgage is another loan secured by the property much like a first mortgage. It is a loan which is subordinate to the first mortgage.

Sub-Prime or sub prime : A sub-prime loan is any loan in which the borrower has challenges in obtaining mortgage financing because of poor credit, hard to document income or assets, or any unique situation that would prevent them from obtaining funding through "conforming" lenders.

Tenancy in Common : Ownership by two or more persons who hold undivided interest, without right of survivorship; interests need not be equal.

Term : The agreed to amount of time for repayment of a loan.

Trust Deed : Just as with a mortgage, this is a legal document by which a borrower pledges certain real property or collateral as guarantee for the repayment of a loan.

Trustee : One who holds property in trust for another to secure the performance of an obligation