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How to Review Your Credit Report Before Buying a House

This article will educate first-time home buyers on the relationship between credit and mortgage loans, and why a thorough review of your credit report should be a preliminary step in your home buying process.

The Credit-and-Mortgage Relationship

Credit and mortgage loans go hand in hand. When you apply for a mortgage loan as part of the home buying process, the mortgage lender will review a number of your financial factors. One of those factors is your credit score, which is derived from your credit report. Basically, the mortgage lender will use your credit score as a risk-analysis tool. Borrowers with higher score represent a lower risk to the lender. Borrowers with lower score are a bigger risk, and have a harder time qualifying for loans.

Your three-digit scores are based on the information found within your credit reports. Your reports, in turn, are based on information reported by creditors and lenders (payment history, account balances, and the like). So your score starts with the information compiled within your credit reports. And that’s why it’s important to review those reports before shopping for a home loan.

Reviewing Your Credit Reports

Long before you apply for a mortgage, you should take a look at your credit. You want to find out where you stand before a mortgage lender puts you under the financial microscope. At the least, this will help you avoid unpleasant surprises. It will also allow you to identify potential errors on your credit report, and work to correct them.

Consumer credit reports are maintained by three different reporting companies. You may have heard of these companies before. They are Experian, Equifax and TransUnion. Your credit score is derived from the information found in the three credit reports maintained by the three aforementioned companies. So you actually have three different scores, and they might all be slightly different.

You can start your review process by requesting copies of your credit reports from the three companies mentioned above. The easiest way to do this is to visit AnnualCreditReport.com. This is a joint website managed by all three of the reporting companies. By law, you are entitled to one free credit report per year, so you shouldn’t have to pay anything if this is your first time.

Looking for Errors

Once you receive your credit reports, review them for errors or inaccuracies. Check the personal information section to ensure everything is correct. Look for loans or other lines of credit that are not yours (this could be a clerical error, or a sign of credit fraud). If you find an error, visit the website of the company that produced the erroneous report to dispute it online. Or call the company’s customer service number and ask how to proceed.

Don’t delay in correcting credit mistakes. The process takes time, so start it as soon as you find an error. Under the Fair Credit Reporting Act (FCRA), the reporting companies bear full responsibility for correcting inaccurate reports. So don’t be shy about asking them to do so.