Three Credit Report Tasks You Need To Know Before Applying For A Mortgage
It's no secret that a good credit score can make it easier to get a mortgage at a competitive rate. The following tasks can help you polish your score before you contact a broker to begin the mortgage process.
#1: Get a copy of your credit report
There are three major credit bureaus that mortgage lenders typically check — Experian, Transunion, and Equifax. You can request one free report from each of these bureaus annually. You need to do so as soon as you determine that a new mortgage may be in your future. It can take up to three months to correct any erroneous information on the reports, so you need to check them at least that long before your mortgage application. Make sure all the information is correct. If you find an error, such as something in collections that you paid or a paid-off balance not being properly reported, you can contest the information with the credit bureau.
#2: Lower your debt to income ratio
A major factor in determining your ability to get a mortgage that the underwriters depend upon is your debt to income ratio. If you have too much debt in relation to your income, then you may be seen as a risk. This can make it hard to get a mortgage for the amount you desire. Begin by paying down revolving debt, like credit cards, but don't close the accounts since this can make your credit utilization rate look high. You should also pay off any small debts that are still outstanding, since this will also lower your debt to income ratio. Definitely pay off anything that is past due, since this can really affect your credit worthiness in a negative manner.
#3: Stop borrowing
This may seem like common sense, but it needs to be said. For the year prior to your mortgage application, stop applying for new credit. Not only do you want to avoid increasing your debt, the credit checks performed each time you apply for credit show on your credit reports and they have a negative impact on your credit score. The checks that show are called hard pulls, where as soft pulls — such as when you check your report — have no effect. Be aware of any entity that may do a hard pull on your credit. For example, sometimes insurance companies do a hard pull to check credit and credit scores before giving a quote, particularly for automobiles. This means if you are shopping around for insurance, you need to ask what type of checks are performed with the application so you can avoid companies that do hard pulls until after you get your mortgage loan.
For more help, contact a mortgage broker in your area.
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