Posted by: Robin Gronsky | October 25, 2010

Why Home Buyers Should Review Their Credit Reports Before Applying For a Mortgage

When you are applying for a mortgage, your FICO credit score  (FICO is the name of the company that created credit scores)determines not only whether you will get approved for your loan but also whether you will qualify for the best rates that lenders have to offer.  Your credit score is derived from what is contained in your credit report.  You should know what is in your credit report so that you know whether the credit score that you have been given accurately reflects your credit history.

Federal Law (the Fair Credit Reporting Act) requires each of the three nationwide consumer reporting companies – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit report, at your request, once every 12 months. The law was passed with the idea that every person should know what is in their credit report.  Looking at your own credit report does not affect your credit score.

 A credit report includes information on where you live, how you pay your bills, and whether you’ve filed for bankruptcy.  It is well known that many credit reports contain errors in them, errors that can affect whether you obtain that mortgage and what interest rate you will be charged. Reviewing your credit report can also help you detect fraudulent activity early, allowing you to take effective steps to limit the headaches you may encounter if you are a victim of identity theft.

 Although the law permits you to receive a free credit report; it does not include a free FICO score.  There are websites that offer credit scores.  These are not actual FICO scores but the credit score from another company should give you a ballpark idea so you know whether you are going to qualify for the best interest rates.

 Because your credit report and the credit scores that are derived from those reports have such importance in you getting your mortgage loan, you should check your credit report carefully.  If there are errors, follow up with each company involved and make sure that erroneous information gets removed.  An incorrect credit report could cause you to get rejected for a mortgage or make you pay a higher interest rate than you should.  This can cost you thousands of dollars over the life of your mortgage.

You should also be aware that your credit report and credit score changes every day as the information in the credit report changes.   So, even if your credit report and credit score was fine when you looked a week ago, if you suddenly charged hundreds of dollars or made a late payment, your credit score could be much lower when you apply for your mortgage.  Be careful of your financial actions just before you apply for a mortgage.

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