 It only makes sense to make sure your financial house is in order before you ever start looking for the home of your dreams. Luckily, Texas residents will have online access to free credit reports by June, making that process just a bit easier.
The Fair and Accurate Credit Transactions Act of 2003 made it possible for consumers to access free copies of credit reports, which list a consumer’s financial history, including total debt and whether you pay bills on time. The law was designed to help us better monitor the reports that are used by banks and merchants to determine if they'll lend to a consumer, and at what interest rate.
As of December 2004, those who live in Western states, along with Alaska and Hawaii, can get free annual copies of the reports from the three major credit agencies: Equifax, Experian, and TransUnion. Those in the South (including Texas) can get their reports online as of June 1.
Better safe than sorry – check reports regularly
Free online credit reports are a good thing. That’s because checking your credit report regularly is the best way to spot identity theft, credit report errors, or other financial missteps that very well could affect your ability to buy a home. Keep a close eye out for:
- Accounts that aren’t yours
- Wrong addresses/contact information
- Delinquencies still on your report after the seven-year time limit has passed
- Notices of late payments that you think were on time
- Multiple collection-agency notices for a single debt
All of these are red flags that could affect your ability to qualify for a loan or nail down a favorable interest rate.
So what do banks look at when they’re considering giving homebuyers a mortgage loan? First is your credit score – the number that lenders use to decide your individual credit risk. Those with higher scores are less likely to default on a loan.
Your score is determined by putting the information from your credit report into software that generates a score, which in turn tells a lender your credit risk. As far as what’s most important on your report and what determines your score, about 35% is based on your payment history. That’s why it’s crucial to send in every payment on time. About 30% is based on what you owe to creditors – for your car, any current mortgages, and installment (credit card) debt.
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Keep in mind that although you might only have a $100 balance on that department store credit card, the credit reporting agency also looks at the potential you could spend, given the opportunity. So, if your credit limit at Foley’s is $2,000, that’s the amount the agency considers – even though that number doesn’t reflect your balance. Some credit experts advise getting rid of department-store credit cards and using a debit or credit card instead. However, if you plan to buy a home soon, don’t make any moves regarding credit until you find out how they may affect your credit score. Some actions you think will help may actually lower your score.
About 15% of your credit score is weighted toward the length of your credit history – how long you have had credit. If you’re fresh out of school and haven’t had a chance to establish credit, now’s the time to apply for a low-interest rate credit card and pay it off on time every month. Those consistent payments will help establish a good credit history, as will paying off any student loans.
Ten percent of your score is based on the type of credit you use – whether it’s a credit card or loans. Finally, the last 10% is weighted toward new credit. Buying a house? Hold off on that new car purchase until after your mortgage loan has closed.
Asking for reports online
Those who use the new online request site for credit reports will be asked for personal information so the credit agencies can match them accurately with their reports. This will include name, date of birth, Social Security number, and current and previous addresses. The site is encrypted to ensure a private and secure connection.
Once the information is verified, your report will pop up on the screen. However, you won’t be able to fix any errors right then and there. As before, you must go directly to the credit-reporting agency to correct any mistakes. Their sites are at www.equifax.com, www.experian.com, and www.transunion.com.
For more information about credit reports and fixing errors, visit the Privacy Rights Clearinghouse at www.privacyrights.org, the Consumers Union at www.consumersunion.org, and the Identify Theft Resource Center at www.idtheftcenter.org.
To request your report online, visit www.annualcreditreport.com. Or, you can call 877/322-8228. You can also mail a request to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, Ga., 30348-5281.
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