How to Raise Your Credit Score for Mortgage Application
Your credit score is one of the most important factors that a lender will use to approve or deny your mortgage application. Credit Scores are made up of a combination of factors like number of total credit lines, average age of credit lines, and usage of those credit lines. If you are reading this article, you may not have 800+ credit, so let's review some of the reasons your credit score may have dipped and what steps you can take to help raise your credit score for your mortgage application.
How to Review your Free Credit Report and Dispute Credit Report Errors
As a result of the fair credit reporting act, the three major credit bureaus (Experian, Equifax, and Transunion) will provide a free credit report annually, so consumers can use this opportunity to dispute credit report errors. Your credit score determines whether you can get approved for a mortgage, so it's important that you continuously monitor your credit report from all three major credit bureaus. There are also services like Credit Karma that can help monitor your credit reports with each credit bureau and can provide some other valuable information about your credit report and the credit reporting process.
If Your Credit Report Has an Error, How Can You Contact a Live Person at one of the Three Major Credit Bureaus For Filing a Dispute to Remove the Incorrect Information on the Credit Report?
A few months ago, we detailed the process of how to dispute credit report errors with all three major credit bureaus and how to get in touch with an actual live person working for the credit bureau, so follow these steps in the dispute process for any errors on your credit report. There are additional resources available to help educate consumers about their credit report and how each credit bureau calculates credit scores at the Consumer Financial Protection Bureau.
Check Your Credit Report For High Balances that Could Negatively Affect Your Credit Report.
A credit score is negatively affected when a balance of available credit is too high. For example, If you have a credit card with a limit of $10,000 and carry a balance of $8500, you are using 85% of your available limit, so your credit report may reflect a lower score. If you pay down the credit card to $2500 (or 25% of available limit), you may see a 20-30 point increase on your credit report. The example provided is just an example and credit reports will vary depending which credit bureau is issuing the credit report. Before applying for a mortgage, its important to review all of your credit accounts and the percentage of available balance you are using. If you are able to pay down some debt, transfer some debt, or obtain a higher limit your credit report may reflect a higher score with each credit bureau since you are using a lower percentage of your available credit.
Which Credit Report Will the Lender use to Underwrite Your Mortgage?
You will receive credit reports from all three credit bureaus, and the lender will typically pick the credit report from the credit bureau with the middle score. The credit bureaus have their own algorithms for credit reporting and create three unique scores for their respective credit reports. For Example, If the Credit Bureaus generate the following scores for your credit reports at the time of your mortgage pre-approval; Equifax Credit Report is 691/Transunion Credit Report is 705/Experian Credit report is 676; the lender will use the credit report from Equifax with the credit reporting score of 691.
Review Your Credit Report for any Late Payments that May not be Reporting Accurately
Each Credit Bureau receives the credit reporting information from your creditors, so they may show credit report errors based on the information received from those creditors and may not be aware of any errors on your credit report. For example, if a consumer was to dispute error on credit report that may have been caused by the creditor, the credit bureau would not be aware. If you are showing a 30 day late payment on a mortgage payment in the last 12 months, your credit report would be negatively affected. But, what if the credit report error was actually a mistake from the creditor and you actually made the payment on the last possible day, but somehow it still affected your credit report? If the creditor admits they made a mistake during your dispute process, it's important to document all correspondence regarding the disputed item.
Review Your Credit Report For Inaccurate Information and Potential Identity Theft
According to Experian, identity theft affects 1 out of every 20 Americans, so it's important to review credit report on a regular basis and immediately dispute any information that may have been caused by identity theft. Credit Reports can also contain a long history and your credit scores may reflect negatively from an account that is not yours. If you have a common surname, your credit file could contain inaccurate information or inaccurate credit limits belonging to someone that shares a common surname or even a family member.
In Conclusion, Let's Summarize How Credit Reports and Credit Report Errors can Affect Your Mortgage Application and Few Tips on How to Raise Your Score
Helpful Links to Assist With Consumer Credit Reports
Chauncey Lawson
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