Owning a home is the American dream, but for many of us, it remains a figment of our imagination because of one thing–a poor credit report history. Many first-time home buyers do not realize that their credit report can make the difference between a lender granting or rejecting their mortgage loan application. The information on a credit report portrays an image of us to potential lenders–it is a financial report card of sorts. So, what is a would-be home buyer to do? The first step to improving and repairing a credit report is to ask for help. Consumer credit counseling services (CCCS) agencies like ours can provide professional guidance on how to retrieve, review and interpret credit reports and analyze your credit score to determine strategies to improve it. Improving your credit report and credit score can be the “key” to owning your new home.
Because purchasing a home is probably the single biggest investment of your life, you should take every action to ensure you are doing it right. It can be hard to know where to start, but your preparation should probably begin months before you even contact a mortgage broker. You can start by getting organized and following the suggestions below.
Make an exhaustive list of every credit card or loan that you currently have or have had in the past (even closed ones). Then, order a copy of your credit report. You are entitled to one free credit report per year from each of the three nationwide credit reporting agencies – Equifax, Experian, and TransUnion. You can obtain the credit report by website (www.annualcreditreport.com), phone (1.877.322.8228), or by mail (form is located at www.ftc.gov/credit). Once you receive your credit report information, you will need to carefully dissect it to ensure that the information is accurate. Because understanding and interpreting credit reports is such a daunting task, a professional credit report specialist can help you take the guess work out of it and learn the proper way to dispute any inaccuracies.
A credit report details many aspects of your credit history that you may not have even considered. Some of the types of information that are collected by credit reporting agencies are:
Another extremely important aspect of your credit report is the credit score. Also referred to as a risk score or FICO score, the credit score is a 3-digit number developed by the Fair Isaac Company (FICO) used to determine your creditworthiness to potential lenders or creditors. The number can range anywhere from 300-850 (with 850 being a perfect score), and is calculated by a complicated mathematical algorithm. The breakdown of how a credit score is weighed is as follows:
If your credit score falls below 650, it is important to improve it by focusing your efforts on reducing your debt, paying your bills on time, and making sure that your credit report information does not contain any inaccuracies. It can take some time to increase your credit score, but it is vitally important to show creditors that you are a responsible and creditworthy candidate.
No one is perfect. We have all had times when we have paid a bill late for one reason or another, and some of us have had serious credit problems in the past, but it is never too late to start improving your credit.
If you ready to purchase a home, but your credit history is still haunting you, prove your creditworthiness to lenders and creditors by maintaining your monthly payments and paying down your outstanding debt. If you need help to budget your finances, and work your way out of debt, you may consider using the services of a reputable consumer credit counseling service.
Unfortunately, it is an all too common occurrence for errors and inaccurate information to appear on someone’s credit report. Disputing these errors and repairing your credit can often prove to be a stressful and difficult task. A credit report specialist can help you. We don’t do the work, but our credit counselors can discuss how you can pay down your debt and improve your damaged credit over time.