If you’re a first-time home-buyer, you may be under the impression that lenders decide to issue you mortgages based solely on your down payment and whether your income allows you to afford the monthly cost. While those factors are important, financial institutions also want to know how reliable you are with your payments and how you manage your financial obligations. They gain that knowledge by studying your credit report.

Their View

Mortgage lenders look at your tri-merged credit profile, which combines the information from the three major credit bureaus: TransUnion, Equifax, and Experian. It includes credit scores. Most lenders look at the middle score to determine your terms and rates.

If you look at your own credit score, either through paid or free services, your number may be higher than what mortgage companies see. These companies use a slightly different scoring model. Credit balances in your credit reports may not show the latest information. Credit card companies typically report your payments and balances at a fix timed every month, which is not necessarily when you make the payment.

Obtaining Your Credit Information



You can view your credit report so you’ll at least know what potential lenders are examining. You’re entitled to one free copy per year from each of the three bureaus. You have the following options for obtaining this information for free online and without obligation:

• Credit Karma offers both your credit score and credit report, which are based on data from TransUnion.
• Credit Sesame gets your score and report from Experian.
• Annual Credit Report is sponsored by all three credit bureaus, which lets you order reports directly from each one. However, it does not contain a credit score. If you order one report every four months, you can have an ongoing view of your financial worthiness throughout the year.
• Credit card companies, such as Capital One, may offer a free credit score as part of your service.

Note that the information in your free credit score and report will differ from the data in your tri-merged credit profile.

What to Look For

After you fill in the online form to prove your identity, you can download the report instantly.

• Examine it carefully to make sure there are no errors, especially in the merchant names, amounts you owe, the dates and amounts of your payments, and your transaction history.
• If you don’t recognize an account or charge card, someone may have fraudulently opened one with your identity.
• Report such misuse or any other issues immediately to the reporting bureau. They must make every effort to correct it. The fix may take several weeks, which is why you should start ordering your reports up to a year before you apply for a mortgage.

Unfortunately, if your report shows bankruptcies, foreclosures, or late payments, you cannot do anything about them if they are accurate. They form strikes against you that may raise your rates or prevent you from obtaining a mortgage. You should try to come up with credible explanations of why they exist, in case lenders ask you about them.

Improving Your Score

Examine your credit report at least six months to a year before you intend on buying a home. You can then use the time to improve score by doing the following:

• Lower your balances on credit cards and other loan accounts. Try to keep your total debt to around 30 percent of the total credit that you have.
• Pay your bills on time. Late or missed payments can lower your score.
• Avoid opening new credit accounts or closing current ones. Instead, ask your current creditors to raise your credit limit. This lowers the percentage of your total debt. However, use this strategy only if you have the discipline not to use the extra credit.

If you want to know more about buying San Joaquin Valley Homes, please contact us.