MORTGAGE ARTICLES – FOR THE SMART CONSUMER
When you begin to consider whether now is the right time to buy a new home, you should pay close attention to your credit report. Every lender will want to pull a copy of your credit report in order to verify your debt-to-income ratio and check your credit score. These two pieces of information are critical for the lender, who needs to determine your creditworthiness and your ability to repay a mortgage loan.
Your interest rate and the amount that you are able to finance will be determined by the information that is reported by the three major credit bureaus. Keep in mind that having less-than-perfect credit does not mean that you will not be able to get a mortgage loan. It does mean that you will probably get a sub-prime rate and will be offered a lower approval rate than that offered to better-qualified borrowers. It really depends on what types of credit accounts you have had in the past and how much you now pay each month.
Having any or all of the following items listed on your credit report will significantly impact the lender’s evaluation of your borrowing potential:
You probably already know if whether one or more of these items appears on your credit report. However, be aware that three distinct credit bureaus track your information. It would be wise to know how each agency is reporting your information to potential creditors. The three major credit reporting agencies are Equifax, TransUnion, and Experian
Some creditors report to only one of these agencies, while others report to all three. Likewise, some lenders request information from only one of these agencies, while others request information from all three. There is no way to determine ahead of time what impact your financial behavior will have on your ability to get credit in the future.
If you are unfamiliar with your credit reports, request a copy from each of the three major credit bureaus. Depending on your situation, you may be able to get these copies for free. In addition, many websites provide you with immediate access to your credit report and score. Be sure to work with a reputable source if you decide to view this information online.
Here Are Some Things You Can Do To Clean Up Your Credit Report
Most consumer advocates recommend staying away from debt consolidation services (not consolidation loans) and opening only necessary credit accounts. In general, the more credit accounts you have open, the riskier you seem to be in the eyes of a potential mortgage lender.
If you have tarnished credit, your lender might ask you to close an account or two. Although this does not improve your credit score, it will reduce your potential for incurring additional debt. Mortgage lenders sometimes make this request before granting final loan approval.
In most cases, lenders are willing to work with people who are trying to clean up their credit reports. Very few people are beyond help in improving their credit score and reports. If you are vigilant and aware of how lenders view you on paper, then you are a well educated consumer who cares about financial appearances. This can make a world of difference to lenders and can help you get the mortgage you need to buy the home that you want.
You will not be penalized for requesting copies of your own credit report or credit score. Therefore, take advantage of the free annual credit report that is available to every consumer and start taking control of your financial situation and future today.