Last time we talked, you and I looked at the basics of credit, that mythical, mysterious credit score, what impacts it, and why it’s so important to creditors when making a decision to lend you money – aka extend you credit. It is said that knowledge is power, but being armed with this new found credit knowledge is no good if you don’t know how to use it. So today let’s talk about a few steps that you can take before applying for a mortgage, or any other loan, that potentially increase your chances of being approved and, quite possibly, could save you a significant amount of money in interest, mortgage insurance and even homeowner’s insurance. myFICOTM reports that your credit score dropping by 20 points (from a 760 to a 740) would cost you $12,183. If it went down to a 630, they report that would cost you, GULP, $90,955 more. Anyone have any spare change hanging around? What can you do to prevent overpaying for your home without even knowing about it? It’s pretty simple really. It just takes a little elbow grease and some advanced preparation. It’s 3 easy steps. Let’s get started.
Step 1: Pull your own credit report
It is important to ensure that your credit report is ACCURATE when you apply for a mortgage. It doesn’t matter if you pay all your bills on time and have never had a medical collection if your credit report doesn’t reflect those same facts. Sadly, incorrect information is reported all the time. As long as I’ve been looking at credit reports it shouldn’t come as any big surprise anymore that incorrect information is reported on a credit report, but it still happens and I am still surprised AND so are my clients.
So how do I get a free copy of my credit reports you might ask? That’s the best part, you can get all three of them quickly and easily in the same place at www.annualcreditreport.com
. I suggest you pull your credit reports at least 60-90 days prior to applying for a mortgage. This will give you time to review and resolve any errors that you may find. If you’re not sure what you’re looking at when you get your credit report, don’t worry. Ungenita Prevost from Posh on Pennies (you can find her on Twitter @UngenitaPrevost or @PoshonPennies) reminds us, “If you need help, seek guidance. Resources are available and it won’t cost you a pretty penny, some are even FREE.” You can bring it by here and I will be glad to go over it with you. We’re in this together. My goal is to help you.
Please take note: this is just going to be the credit report and is not going to include a credit score. The important part is to make sure what is reporting is accurate.
Cherie Lowe, of the QueenOfFree.net suggests pulling one report from a different bureau every 4 months to be able to monitor your credit continuously throughout the year (you can find her on Twitter @thequeenoffree and online at www.queenoffree.net
). I think this is a great idea for standard monitoring and a great way to catch fraud early (when someone steals you identity, or steals your credit card number, but you still have your card), but when you are arming yourself with knowledge to apply for a mortgage you are going to want to be fully armed, not just 1/3 armed. It’s not uncommon for creditors; especially the ones that report negative debt, such as collection agencies and municipalities that report tax liens, bankruptcies and judgements, to only report to one bureau. Therefore, obtaining a copy from all three bureaus will ensure you have the most accurate and up to date information.
Step 2: Review your credit report
When reviewing your credit report you want to look at each account and ensure it does, in fact, belong to you. If there is an account that does not look familiar call the creditor to obtain more clarification. Keep in mind that some store credit cards don’t report in their name but the name of the bank that issues the card. For example, you may have a store card such as Home Depot that is issued through Citibank North America this might show on the credit report as CBNA. This brings up a side note about your business and personal debts. If you are self-employed, sometimes you will not see your business debts on your personal credit report and sometimes you will, because, as Gerri Detweiler of Nav explains, “most small business credit cards require the business owner/cardholder to personally guarantee the debt.” (You can find Gerri on Twitter @GerriDetweiler and @navSMB) This topic is ball of yarn unto itself and we will explore in depth at a later time.
Let’s talk about account balances real quick, in particular, credit card balances. My clients often tell me that the balance showing on their credit report is not the current balance of their credit card. It is a common misconception that at the time you pay your bill or that the balance changes, the creditor updates that balance to the credit bureaus. Creditors only report to the credit bureaus once a month and this is usually at the time that your monthly bill drops, so if the report doesn’t match your current balance this isn’t necessarily erroneous reporting or cause for concern. If the reporting is out of line with any kind of balance you have had in the past 30 days then you should look into it further. The payment amount might also be different than what you are expecting. If you normally pay your credit card in full each month, they may report a minimum payment amount or, if they don’t report a payment at all, the credit bureau may impute (calculate) a payment based on a percentage of the outstanding balance. Not to worry. This can be easily updated.
Keep an eye out for authorized user accounts. An authorized user account is typically a credit card account where you are not actually the account holder or responsible for the debt, but you have been issued a card in your name. Even though this is not your account, this will still appear on your credit report and can impact your score. If it is an account in good standing it may help your credit and you will want to leave it, but your lender might not let you. If an authorized user account is the only “good” account you have or you have a “thin credit file” (only a few trade lines) then that one account can have a tremendous impact on your credit score and be skewing the true picture of your likelihood to repay the money being lent to you. But if it has any negative factors such as late payments, credit utilization greater than 50% or less than 12-24 month payment history, in most cases you will want to be deleted as an authorized user and have that account deleted from your credit history.
Also be sure to look for what is NOT reported. Are there payments you made that haven’t been reported? Have you paid off any collections that have not been closed out? Do you have any tax liens or judgements that are not being reported as “satisfied,” that should be? Creditors are quick to report an account in negative standing, but when you pay it off or satisfy it, they aren’t always so quick to update the reporting in your favor. If that’s the case, you could be paying the price for their delay.
Step 3: Dispute and Resolve accounts reporting incorrectly
Obviously, any errors you find on your credit report you will want corrected immediately. These corrections are made by filing a dispute either with the credit bureau that the incorrect information is reported to or with the creditor that reported the information. First, contact the creditor to determine if this is something you can resolve directly with them. If they have not made the correction, you will need to be prepared to provide documentation to fully support your dispute. The creditors and credit bureaus will not just take your word for it. They aren’t going to call you a liar, but you don’t want to get into a case of he said/she said with your creditors. It is possible to file a dispute without documentation, but it will likely take longer and is less likely to go in your favor. Better that you keep good records or go find the documentation needed before filing the dispute. A little extra legwork on the front end will save you a lot of time and frustration later.
The other option is to dispute the information directly with the credit bureau. When you receive your free credit reports online, they will provide you with a link to dispute your accounts online, but you can also call or follow the links below.
If you choose to file a dispute with the credit bureau(s), the creditor has 30 days to respond, so you can see how this can become a lengthy process and why you should give yourself plenty of time prior to applying for a mortgage to clean up credit discrepancies. One of 3 outcomes is possible: 1) If the creditor does not respond, the disputed information will automatically be removed by the bureaus. 2) The creditor can respond and correct the information, which is the ideal scenario because you will know they have corrected their records as well. 3) They respond that the information reported is correct as their records reflect and they are not making any revisions. If this third outcome happens you then have a decision to make; you can try to provide more documentation and continue the dispute process or you will need to have the dispute removed.
It will be important to have any outstanding disputes removed from your credit report before you apply for a mortgage. This includes disputes that may have been placed prior to pulling your credit reports. Mortgage lenders almost always require any disputes to be removed because it can give a “false” credit score. Gerri Detweiler of Nav explains that “disputes could have an effect on your credit scores. While an account is documented as disputed it is temporarily excluded from consideration by the VantageScore model”
(you can find her on Twitter @gerridetweiler or @navSMB and online at www.nav.com
Now that your credit report is accurate, you have empowered yourself to apply for a mortgage and you’re one step closer in your journey to purchase your dream house.
As I mentioned before, there is more to cover on credit when you are self-employed and we will do just that in another blog post. Join us there or, if you have a burning question, you can reach me on Twitter (@ChrisEllaLoans), Snapchat (ChrisElla2), CyberDust (ChrisElla), email ChristyS@StarkeyMtg.com
, at the office at 912.721.9400, and my website at www.LoansWithChristy.com
. Find out more about me and more ways we can connect (Facebook, Instagram, Twitter) at www.about.me\chrisella
As always, if you liked this article please like, share, or comment…….or all of these things; they are greatly appreciated.
Christy Soukhamneut, Area Manager
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