If you are considering buying a home one of the first steps you should take is to get a copy of your full credit report. This means getting your credit report from Experian, Trans Union, and Equifax. You need all three because each of these are used to determine your credit worthiness in the event you apply for any type of mortgage including: VA home loans, FHA loans, and conventional mortgages through Freddie Mac and Fannie Mae.
Why are you looking at your credit report so early? Well, the truth of the matter is that you are looking to make sure that you don’t have any credit report surprises standing in your way of getting that mortgage approval when it is crunch time. Problems with your credit report can cause problems with your credit scores which together could either prevent or hinder your efforts in getting low VA rates, or FHA rates or Conventional rates for your mortgage.
Credit reports are not created equal and each credit bureau gets and reports slightly different versions of your credit. What this means is that you stand the chance of having differences between the three different versions of your report and it is in these differences where problems can lie.
Some problems to look for include: mistakes in your name spelling, former and current home addresses, former and current employers, account balances, actual accounts you had and currently have etc.
Slight variations in any of these pieces of information can lead to lower credit scores and credit report red flags. For example, let’s say that you are put on your mortgage application that you have been living in one apartment for the past 4 years, yet your credit report suggests that you had a former address that is different from a year ago. If this is the case and you don’t catch it first, you could be in for a long ride of scrutiny from the mortgage lender to ensure that you are who you say you are. Sorry, but there is a ton of identity theft and fraud out there that lenders are challenged to make sure that all the “i’s” are dotted and the “t’s” are crossed. If they see something questionable it is their job to seek the correct information.
Another example of what you need to pay close attention to is your account balances and account limits. If your accounts are paid in full but still show a balance you could have a lower credit score. Likewise, if you have accounts that show lower credit limits than you actually have you should get the correct limits reflected on your report as you could be showing a lower credit limit to balance ratio. The lower the ratio (more debt to lower limits) the lower your credit scores. While this might seem like a minor point, it could make a difference of 10-30 points which could move you up an approval tier which could result in lower interest rates and monthly payments.
The list of issues with credit reports goes on and on. The important thing to do is to get a copy of your report and review it, well in advance of starting home buying process. The same advice actually applies to you if you are considering a refinance and you haven’t checked your credit in awhile. Do yourself a favor and get your report early and save yourself some headaches.