Mortgage Loans 101: The Truth About Credit Reports

The truth about credit reports is that they are important and will have a significant impact on your ability to obtain certain loan packages.

A bad credit report does not put mortgage approval out of your reach entirely, but it does mean you'll have trouble obtaining mortgage packages designated for highly qualified applicants.

It Starts With Your Credit Report

It's a good idea to know what's on your credit report before lenders begin to pull it. You may be surprised to learn that the three major credit reporting agencies (Equifax, TransUnion and Experian) could all have different information about you on file.

Review Your Credit Report

First, you will want to make sure the information on your credit reports is accurate. Misinformation can be fixed, especially if you can prove that the information provided on the reports is incorrect. Each agency provides a dispute mechanism where you can request an investigation and subsequent corrections.

Parts of a Credit Report

The most significant issues on a credit report are: bankruptcies, judgments and charge-offs. Ideally, these items will not be on your report at all. But if you do find any of these on your credit report, make sure they are accurate. If a negative element is on your report incorrectly, work to get it removed as quickly as possible.

Late payments, over-the-credit-limit reports, and the amount of credit you have available versus the total amount of credit you have are all factored into your credit scores. On the positive side, on-time payments, the number of accounts you have in good standing, and the number of years you have had accounts open will all help your credit score.

Credit Counseling and Repair

There are a number of agencies, both paid and non-profit, that offer credit counseling and credit repair services. Though not all consumers find these services helpful, many people benefit from them and are able to improve their credit scores substantially.

As soon as you start thinking about buying a home, you should order credit reports from all three agencies. Often you can obtain them for free. Review the reports carefully and begin to clear up any misinformation, or ask them to add positive/helpful information to your report if it is missing.

Conclusion

The better your credit profile, the more likely lenders are to approve you for the higher qualifying loan packages (that often get the best rates)! The key to credit reports is to ensure the information is accurate, and to limit the negative information as much as possible. Going forward, paying debts on time is the single best way to improve your credit score.

* Copyright 2006, Brandon Cornett. You may republish this article if you keep the byline and author's note, and also leave the hyperlinks active.

Brandon Cornett is publisher of Home Buying Institute, the Internet's largest library of home buying advice. You'll find more credit score information at http://www.homebuyinginstitute.com