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Your Credit History Your Credit Report A very basic—and yet extremely important—factor in your ability to get a mortgage is your credit rating. It is not a secret that the best interest rates, as well as the most flexible loan terms, are available only to those with the strongest credit scores. Your credit history is one of the principal measures used by a lender to determine your interest rate. Not only will your monthly mortgage payment depend on your interest rate, but the amount you qualify to borrow will be affected by it as well. A higher interest rate translates into a higher payment and may reduce the loan amount for which you can qualify.
As part of the loan application process, virtually all lenders will want to see a copy of your credit report. The report will list all your long-term debts (credit cards, mortgage payments, automobile and student loans, etc), as well as your payment history. However, most real estate experts agree that it is a good idea to obtain a copy of your credit report several months before you apply for a loan. This is so you have a chance to resolve any problems with your credit before your bank sees it. U.S. Federal law ensures that you have access to your credit report, which may be obtained from your local credit bureau or any of several national firms that specialize in credit reports. Errors on your credit report Many people are surprised to learn that credit reports can often contains errors or inaccurate information. If this is the case with your credit report, you'll need to contact the reporting agency or creditor to have the problem resolved. This can sometimes be a slow process, so make sure to give yourself time to clear up the mistake. You should be aware of what information the credit reporting agencies have regarding your financial situation by obtaining and reviewing copies of your credit report from the three main credit reporting agencies. (Even if you are not planning to purchase a home, you may want to consider obtaining and reviewing your credit reports on an annual basis to make sure the information reported is accurate, and to catch any discrepancies that could damage your credit.) By making this task one of the initial steps in your house-hunting venture, you may save yourself from unnecessary delays later in the purchasing process. Credit Reporting Agencies There are three major credit-reporting agencies: Equifax, Experian (formerly TRW), and Trans Union. Rather than contacting only one of them, I strongly suggest that you request a credit report from all three. Since not all creditors report to all three agencies, it’s not uncommon to find different information reported on each one. However, your goal in ordering all three credit reports is to make sure that all of the information stated on each report is accurate and correct. You can request your credit report from these companies for a nominal fee. An annual report is free upon request for residents of Colorado, Georgia, Massachusetts, Maryland, New Jersey, and Vermont. Additionally, you may obtain a free personal credit report if you have been denied credit within the past 60 days.Here is how to contact the credit reporting agencies: Equifax Equifax Information Service Center P.O. Box 740241 Atlanta, GA 30374-0241 1-800-997-2493 http://www.equifax.com/ Experian Experian National Consumer Assistance Center P.O. Box 2104 Allen, TX 75013-2104 1-888-397-3742 http://www.experian.com/ Trans Union Trans Union Corporation Consumer Disclosure Center P.O. Box 390 Springfield, PA 19064-0390 1-800-88-4213 http://www.transunion.com/ Late payments For most people, problems with their credit report are likely related to late payments on a debt. If you were late one month in paying off your credit card, but otherwise have a good payment history, chances are most lenders won't be too concerned. But if you have a history of late payments you'll need to document the reasons why. A slow payment history won't necessarily get you turned down for a loan, but you may have to pay a higher rate of interest or otherwise prove to the lender that you can repay your loan in a timely fashion. Bankruptcies and foreclosures There's no getting around it, a bankruptcy on your credit report is not a good thing. But that doesn't mean you still can't obtain a loan. Even though a bankruptcy may stay on your credit report for seven to ten years, lenders will often consider the circumstances surrounding a bankruptcy (family illness, injury, etc.). Moreover, if you have reestablished good credit since the bankruptcy, a lender will be more inclined to approve your application.
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