The Mortgage Process
How does my past credit history affect me?
Your credit standing impacts many of the financial and life decisions that are made about you, including the ability to secure loans, obtain the best interest rates, and in some cases, even gain employment. Your credit score is used to predict how likely it is that you will repay a new loan.
The credit scoring system was developed based on experience with millions of consumers. In general, the computer model assigns points to information in a credit report. For example, making payments on time every month is positive for the score. Charging the maximum amount available on a credit card is negative. The computer adds the positive and negative points, and the resulting number is your credit score.
Sometimes people think they have good credit. Then, they apply for a loan and are surprised to learn that there are some problems with their credit. That’s why it’s critical that you get a copy of your credit report and credit score a few months before making such a major purchase. You can easily obtain your credit report through www.annualcreditreport.com. In addition to providing you with your credit report, they also offer a variety of credit management tools and educational resources.
Once you have obtained your credit report, check it thoroughly to make sure the information is accurate. It’s possible for incorrect, incomplete or outdated information to appear on your credit report. Keep in mind that you are the only one who’ll notice if anything is out of the ordinary and it is up to you to find any inaccuracies. Mistakes on your credit report can drastically lower your chances of qualifying for the mortgage and interest rate you deserve.
If you find an error, take the following steps to fix it as soon as possible. If you see evidence of fraud, contact the credit reporting agencies immediately. Explain the situation and ask that a fraud alert be placed in your file. Identity theft is the fastest growing white-collar crime in America and, in addition to being the leading fraud complaint last year, on average the rate of incidents has more than doubled each year since 2000.
It’s more important than ever to stay on top of your credit history and know what’s in your credit report.
For more information about how to understand and improve your credit score, visit the Federal Reserve’s Consumer’s Guide to Credit Reports and Credit Scores.