Why is it important to check my credit report?
There is one key piece of paper to have in hand before you start looking for that perfect home that will increase your chances of having your offer accepted: pre-approval from a mortgage lender. And the lender will run a credit check as part of issuing a pre-approval letter. But let’s say you want to check out your credit score for yourself before you contact a mortgage lender.
There are several online services that will provide your credit score for free.
What does my score mean?
A score of 700 is considered “good” credit, and one between 750 and 850 is considered excellent, giving you the best access to the lowest rates and best loan terms. If your score is below 700, your lender can advise you about your prospects for getting loan approval now, or what you need to do in order to bring your score up so you can get approval.
How is my credit score calculated?
Your credit score is a calculation of five different factors, in order of importance to lenders:
- History of on-time or delinquent payments;
- Amounts owed to other creditors;
- How long your accounts have been established;
- What is the nature of the credit mix, e.g., credit cards, retail stores, installment loans, etc.
- How much new credit do you have, which may be an indication of needing cash if several new credit card accounts have been opened.
So what’s in a credit report?
- It will show information about you: name, address, social security number, when you were born and employment information;
- It will show all your credit accounts, e.g., credit cards, car loans, existing mortgages, etc., when you opened the accounts, your credit limits, the balances on those loans, and your payment history;
- It will show inquiries other lenders, and you, have made about your accounts over the last two years;
- It will show public record information from courts regarding any bankruptcies, foreclosures, lawsuits, attachment of wages, liens and judgments, and from collection agencies for overdue payments.
Getting your credit score is valuable information for more reasons than just a sneak peek at what your mortgage lender will see:
- It may be the first source of information that you are a victim of identity theft;
- It gives you an opportunity to correct information that is outdated or incorrect;
- You can keep track of your progress in correcting past credit problems that may interfere with loan approval.