What it contains and how you can correct problems
Like it or not, in order to obtain a mortgage loan, you’ll have to expose your credit record. Don’t panic if it shows something unexpected. Small problems and errors can be cleared up fairly easily. More serious marks like bankruptcy, however, could derail your hopes for a loan. Reviewing your report and taking care of any errors or discrepancies before you apply for a loan can smooth the way.
What’s in your report?
Every time you obtain credit from a bank, a department store, or other lender, the information is placed in your credit report. Your report indicates the date opened, the lender, your account number, the opening balance, credit limit, and monthly payment. The report also lists the number of times you have been late making a payment at least thirty days, 60 days and 90 days. Utility accounts generally are not reported unless your payment is severely late.
The magic number
Your credit score is a statistical analysis of the likelihood that you’ll pay back your loan on time. Drawn from variables in your credit report, your score is a number between 400 and 900. You want a score of 620 or higher. If you score 680 or higher, you’re considered a premium borrower, and you’re eligible for lower rates and better terms. On the other hand, a bad credit loan report, one with a score below 620, doesn’t necessarily close the door on a mortgage loan.
Certain marks may cause a lender to decline your loan application. Lenders don’t want to see these on your report:
- Bills turned over to collection
- Late payments (These typically only show up on your report if your payment is more than 30 days late.)
- Recent or numerous credit inquiries (An inquiry shows up on your report every time you apply for credit.)
- Overextended credit
- Bankruptcy (which may stay on your record for 10 years)
- Paycheck garnishments
Reversing questionable marks
Simple errors are usually easy to rectify. For example, your report may state that your $50.00 minimum monthly payment on a particular credit card is actually $5000.00-a simple mistake of too many zeroes.
If your mortgage loan officer raises a question, provide him or her with a recent statement, which should show your minimum payment amount. Then contact the creditor and ask them to send a letter to the credit reporting agencies requesting a correction.
If you find a questionable bad mark, ask the credit bureau in writing to re-investigate the mark. The bureau will usually provide a form for this purpose. After you submit the form, the bureau has 30 days to investigate your claim and change your record. If you are correct, or if the creditor who gave you the bad mark can no longer verify the information, the credit bureau must remove the mark from your report.
If the information that caused the bad credit loan report is correct, check the date. With few exceptions, the bureau should clear items that have been on your record for more than seven years.
How to obtain your report
Request copies of your free credit report from any of the three national companies that lenders use. Reports cost about $8, although you may be able to get one report free from some companies.
Experian (800) 311-4769
Equifax (800) 685-1111
Trans Union Corporation (800) 888-4213