Buying a home is exciting. It’s also one of the most important financial decisions you’ll make. Choosing a mortgage to pay for your new home is just as important as choosing the right home.
It’s always a good idea to review your credit reports and scores periodically, even if you’re years away from shopping for a home and a mortgage. If you’re planning to buy a home this year, we recommend checking your credit reports and scores as soon as possible.
The three major credit-reporting agencies—Equifax , Experian, and TransUnion—offer reports to you by mail or via the Internet. Order one from each as they may all have different scores. Credit Karma is also available to review your credit score and report anytime for free! I highly recommend this option, it only takes a minute to sign up and you can review your credit history immediately.
The better your credit history, the more likely you are to receive a good interest rate on your mortgage loan. Lenders will use your credit reports and scores as important factors in determining whether you qualify for a loan, and what interest rate to offer you. If there are errors on your credit report, you may have trouble qualifying for a loan. So, don’t delay in checking your credit that way you can take steps to fix any errors as this can be a long process!
Scores below 620 are considered risky; 720 and above earn excellent rates and terms.
When you review your credit report, look for:
- Incorrect first and last names
- Addresses of places where you did not live
- Names of employers you did not work for
Review each account listed on your credit report. If you see any of this information, highlight it:
- Accounts you don’t recognize
- Accounts that are listed twice
- Accounts that have been closed but are listed as still open
- Incorrect current balances
- Incorrect negative account information, such as late payments and missed payments
- Negative account information, such as late or missed payments, that is more than seven years old
Check the credit inquiries section of your credit report:
- Look at the section labeled “inquiries that may impact your credit rating” or “inquiries shared with others.” Are there any companies listed that you don’t recognize? This section should only include companies that you have applied for credit with in the past two years.
- Inquiries listed in sections labeled “inquiries shared only with you,” “promotional inquiries,” or “account review inquiries” do not impact your score.
Check the “negative information” section:
- Are there accounts placed in collection that you don’t recognize or that are more than 7 years old?
- Are there public records such as civil lawsuits, judgments, or tax liens that you don’t recognize or that are more than seven years old?
- Are there bankruptcies that are more than 10 years old?
When you are ready to take on the task of checking your credit report, print this checklist to help you review each section. Credit report checklist
If you find errors or fraudulent activity after your review of your credit report, you have the right to dispute inaccurate or incomplete information.
To dispute an error, you should contact both the credit reporting company and the company that provided your information to the credit reporting company. For example, if you review your report and find a listing for a student loan you never took out, you should contact both the credit reporting company that provided the report and the student loan company listed. Be sure to include supporting documentation with your disputes to both companies. The companies must conduct an investigation and fix mistakes as needed.
If you have a low credit score
Borrowers with credit scores in the mid-600s range and below generally pay the highest rates and have the fewest choices. Borrowers in this range may have trouble qualifying for a loan, depending on the loan type and the specific lenders. If your score is in this range, you may want to meet with a housing counselor and explore your loan options to decide whether you want to go ahead now or work to improve your credit before applying for a mortgage.
When you’re buying a home, your credit matters
Don’t apply for any more credit than you absolutely need. If you can, avoid applying for new accounts or adding significantly to your debt. Your credit score may decline if you have too many new account requests or too much new debt. However, when you request your own credit report, those requests will not hurt your score. And when you shop for a mortgage with multiple lenders, the additional credit checks won’t hurt your credit so long as they happen within a short window of time, roughly 45 days.