“Know the Details of Your Credit Report and Score Before You Apply for a New Mortgage”
Applying for a home mortgage can be an unfamiliar and anxious process for many people. Do I make enough money to qualify for the home I want? Is my credit score good enough to qualify for a decent mortgage rate? Will that unpaid student loan or late credit card payment show up on my credit report and raise a red flag?
These are just a few of the question many folks ask when approaching the mortgage application process. Preparing to apply for a new home loan or mortgage refinance can be a stressful process, but it doesn’t have to be if you do a little research, and advanced planning.
Information is the most important thing you can have on your side when you go into the mortgage application process. Having a successful outcome, starts with doing your homework, developing a strategy and monitoring the results.
Doing Your Homework
If you are like most Americans, you have not reviewed a copy of your credit report from each of the three major credit reporting agencies in the last three years. Maybe it is the fear of finding or facing negative information, the fear of not understanding the complex terms and definitions, or the cost of obtaining the report. With respect to the last item, the good news is that Congress has made it possible for everyone to get a copy of their credit report from each of the three credit reporting agencies for FREE once a year just by visiting www.AnnualCreditReport.com.
Here you can create a profile, authenticate through the secure website, and download a copy of your credit report from each of the three credit bureaus absolutely free…no strings attached. It’s the law. During this process, you can pay between $5 and $7 dollars additional to each bureau and they will also provide your credit score, but use a site like Credit Karma (www.CreditKarma.com) and you can get a free credit score as well…no credit card required and no free trial. Using these two sites, you should have a very clear picture of exactly what the lenders will be seeing.
Develop a Strategy
Now that you know what is on your credit report, and you understand how each bureau has calculated your credit score, you need to develop a strategy. Assuming your credit profile is less than sterling, you need to develop a strategy to correct erroneous information, pay any outstanding obligations, and update out of date information to improve your score as much as possible.
1) Do your Homework and Update Errors or Erroneous Information – Be sure the information being reported about you is correct and up to date. Update addresses, places of employment, and if you have any outstanding payments, settlements of outstanding balances or outright incorrect accounts being reported that are not accurate or not yours, you need to dispute these items in writing and have them corrected, updated or removed. Write to each of the credit bureaus individually to dispute these items. By law, they must remove them or reply in writing within 30 days as to the reason why they believe the information is accurate. Be sure and also dispute each item with the creditor that is incorrectly reporting the item to the bureaus. You can find information online as to how to dispute information you believe to be incorrect or erroneous.
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2) Develop a Strategy to Improve your Credit Score Understand what is having the most impact on your credit score. Is it a late payment? The balances on your credit cards are too high? There are too many credit inquiries on your credit report? Or, do you have a negative item like a charge-off, settlement of an account for less than the full balance owed or a judgment filed against you for an outstanding debt. Some of these items are easier and quicker to deal with than others, but the reality is, you can only do what you can do. If your credit card balances are high and you can pay them down a bit, do that. If you have an outstanding debt you didn’t know about or couldn’t pay, take care of it if you can. Many credit items reported to the bureaus stay on your credit report for 7 years and some items will remain for 10 years, so chances are, even a few minor indiscretions from your past may be dragging down your credit score a few points.
To understand which items may have the most impact, there are several good tools such as a credit score calculator from Credit Karma which is free to use, or the credit bureaus have a number of similar resources like the credit score estimator from FreeCreditReport.com (a paid service from the Experian credit bureau) that will let you enter different scenarios to see what the impact to your credit score may be. Pay down a credit card $500 and see if it improves your score vs. paying an outstanding debt to have the account reported paid as agreed. These calculators can be very helpful in determining which part of your strategy will have the greatest possible impact on your credit score.
3) Monitor the Results – After you have developed your strategy and followed through with your payments, or disputed the information reported in error on your credit report, request an updated copy of your credit report to be sure the data has been updated.
This is where a paid service from one of the credit bureaus can come in handy during the lead up to the mortgage application process. For about $15 a month (give or take) the bureaus all provide a paid monitoring service where you can check your credit report, get your credit score, use their credit score estimator tools and even purchase a merged three bureau credit report. Most of the services also provide alerts and monitoring tools to let you know when your score improves or goes down.
Finally, if you feel after disputing erroneous information on your credit report that your creditors or the credit bureaus are still reporting information in error, you can file a complaint with the Consumer Protection Financial Bureau (www.ConsumerFinance.gov) and ask them to intervene on your behalf. Many times, a complaint filed with this federal agency can create the needed sense of urgency to get the bureaus to address the matters relating to errors on your credit profile.
For more information, visit these websites and determine if the products offered are right for you.
Credit Karma – www.CreditKarma.com
Free Annual Credit Report – www.AnnualCreditReport.com
Experian Consumer Credit Services – http://www.experian.com/consumer-products/credit-report.html
Equifax Score Watch – http://www.equifax.com/fico-score-credit-watch/
Trans Union Credit Monitoring – http://www.transunion.com/personal-credit/credit-management/credit-monitoring.page