How to Check Your Credit Report
With home buying, checking credit reports should be on everyone's
list of financial obligations. Good credit can lead to a magical
world of cheap rates and good terms, while erroneous credit reports
can unfairly raise the cost of borrowing.
What does your credit report say?
Lenders typically look at three credit reports when reviewing
mortgage applications, the argument being that three reports may
identify credit issues that a single report would miss. Alternatively,
there is a movement toward a single report, which Fannie Mae will
try later this year.
So what's in your credit report and what steps can you take to
make it stronger?
If you expect to be in the market for a mortgage in the near future,
say the next two or three months, it makes sense to obtain a copy
of your credit report from the three major credit reporting services
-- Equifax, Experian and TransUnion. The cost per report is minimal,
and in some cases they may be available without cost.
You want to check your report for several items:
Are there entries which are factually incorrect? If yes, contact
the credit reporting agency by certified mail, with a return receipt
requested. Lenders have 30 days from receipt to correct or confirm
a challenged entry.
Does the report include information regarding someone else? If
you are "Fred Smith" and not "Fred Smith, Jr." or
some other individual, then the report needs to be corrected.
Do you have old credit accounts which remain open? The fact that
an old credit card is "inactive" does not mean it's "closed." If
an account is inactive, if it hasn't been used, is unnecessary
and likely won't be used, then contact the credit issuer and have
the account shut. Closing inactive accounts can raise credit scores.
Do you have late payments? By "late" credit issuers mean
30, 60 or 90 days after payment is due. Late payments are a huge
no-no to lenders and can quickly knock down credit scores.
What are your debts? Lenders look at real estate, installment debt
such as a car payment, revolving accounts such as credit cards,
collection claims, and other obligations. Check the numbers to
assure they are right.
Is address information accurate? The wrong address may also mean
incorrect credit references.
Is your Social Security number correct? A single wrong digit and
the whole credit report is likely to be rife with errors.
How many credit inquires have you made in the past 90 days? In
this case, lenders want to know if you have recently extended your
credit obligations or opened new accounts. The concern is that
maybe the high cash balances that appear on the credit report are
really just evidence of increased debts rather than savings and
good cash management.
Do you have any delinquent credit accounts?
Each credit report will also provide credit scores, a shorthand
way to evaluate your overall financial performance. Scores can
range from 200 to above 800, but you can guess that anything below
620 will not thrill lenders while 720 or better will likely guarantee
the best possible rates and terms.
What to do if you have bad credit? Start paying bills on time,
reduce debts, and build savings. None of this will happen quickly
or automatically, but over time -- perhaps in a year or two --
your credit report will shape up.
What to avoid? Do NOT engage in "credit substitution" schemes,
efforts to create a new credit identity. Such schemes are illegal,
despite promoters' claims to the contrary, and they are obvious
to lenders.
Back to Buyers Articles
Contact
me today for more information
