Checking Your Credit
When buying a home, one of the first things you should do is check your credit report and score. Your credit score is probably the most important piece of information a lender considers when deciding on your interest rate, so you want to be sure that everything on your credit report is correct. Mistakes can hurt your credit score, increasing your rate and monthly payment.
Your Report and Score
The credit bureaus gather information on your credit payment history, which forms the basis of your credit report. The information they compile includes your current address and past addresses; the amount of debt you carry, what kind of debt it is, the lenders’ names, and your debt payment history; how often credit report inquiries are made; and your history of liens and bankruptcies. The bureaus use that information to compute a credit score. Your score is a number between 300 and 900, with 900 being the best credit score and 300 the worst. Lenders use your credit score as a general indicator of your creditworthiness, so if your credit score is low, you might be charged higher interest rates. For more on this see What is a Good Credit Score and What Score Do You Need to Buy a Home
Why are they sometimes called FICO scores?
Because the software used to calculate a vast number of reports was created by Fair Isaac Corporation (FICO).
Check your credit for free
You can get your credit report for free; however most credit scoring agencies make you pay for your score. By law, every year, you can request a free report from any of the credit bureaus. You can get a copy of your free report at AnnualCreditReport.com.
What if there are mistakes?
Mistakes do occur, especially for people with similar names or social security numbers. That’s why checking your report and score before you get a mortgage is important. If there is a mistake that could hurt your credit score, you’ll want plenty of time to get the error corrected. To correct a credit error, you need to write the credit bureau, describing the problem. The credit agency must investigate the items in question, usually within 30 days. Then they will send confirmation of the corrections. Please let us know if require assistance in disputing any errors you find on your report. If your efforts to resolve your credit disputes prove unsuccessful you may contact the Consumer Financial Protection Bureau for assistance with your credit dispute.
If you discover that your credit report is accurate, but your credit score is low, you may want to postpone buying a home. Instead, take a few months to improve your credit score by paying your bills on time and reducing your debt. Waiting also allows you more time to pull together a good size down payment. If you wait a few months for your score to increase, the result should be a better interest rate on your mortgage, which can save you a lot of money in the long run.
If you do decide to go ahead with buying a home even if your credit is less than perfect, it’s still important to work to rebuild your credit. Once your score improves, you can refinance your mortgage for a lower-interest loan, which could lower your monthly payments.