Home Buying and Your Credit Report

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. 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.

How to Get Started: Getting All Your Ducks in a Row

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 online (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.

You can also check out our guide to reviewing and cleaning up your credit report.

What Information is in a Credit Report?

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:

  • Information on Employment and Identity – This includes such pieces of information as your name, social security number, date of birth, addresses (current and past) and spouse’s name. Your employment information includes jobs you have held in the past and income.
  • Your Payment History – Includes every credit account that you have ever held detailing whether or not you have made timely payments and what your credit line was.
  • Any Past Inquires Made on Your Credit – If any creditors have requested information on you for either credit purposes (within 1 year) or employment purposes (within 2 years).
  • Any Information on Public Record – This includes such items as bankruptcies, liens, or foreclosures.

What does the Credit Score Do?

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:

  • Payment History – 35%
  • Outstanding Debt – 30%
  • Credit History Length – 15%
  • New Credit Applications – 10%
  • Your Credit Mix – 10%

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. Here are some more tips for improving your credit score.

How to Get Started

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’re 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.

What to Do About Inaccurate Credit Report Information

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. This our guide“>guide will help you get started. Our credit and housing counselors can also discuss how you can pay down your debt and improve your damaged credit over time.

Ready to Buy a Home?

Choose your combination of counseling and education courses, and get started!

Start Online

Or call 800.750.2227 to schedule a phone counseling appointment.