Looking to buy a home in the near future? Then take a serious look at your credit.
"The mortgage lender is going to pull credit reportts on you and those reports are going to weigh very heavily. These days, especially, you're going to have to answer for any credit screw-ups or difficulties," says Keith Gumbinger, of HSH Associates, the mortgage publishing firm.
Like other mortgage specialists, Mr. Gumbinger suggests that at least a month before you apply for a mortgage, you order copies of your credit reports from credit bureaus. That way you'll have time to seek corrections or insert explanations if the reports are blemished.
"Never assume your credit reports are totally accurate because inputs come from a lot of different sources whose record-keeping methods may or may not be suspect," Mr. Gumbinger says. Marvin Kaplan, a spokesman for the Associated Credit Bureaus, which represents most U.S. credit bureaus, insists that errors are rare and that many of those that occur are due to the consumer providing the wrong information.
But critics argue to the contrary.
At the American Civil Liberties Union in Washington, for instance, attorney Janlori Goldman says 30 percent or more credit reports contain inaccuracies. Through its privacy project, the ACLU is pushing for stronger federal safeguards to protect consumers from errors and restrict access to credit reports.
"Remember that many of the people entering data that goes to the credit bureaus are minimum-wage workers or people who may be only semiliterate," Mr. Gumbinger says.
Making your credit reports shine has always been a big part of the mortgage application process. But in the early 1990s, credit standards have become ever more stringent ` due, in large measure, to closer scrutiny of lenders by federal regulators.
"S&Ls and banks are interested at this point in originating the highest-quality loans. If your credit doesn't look good, they may ignore your mortgage application or offer you some lesser mortgage product," Mr. Gumbinger says.
Even if you're confident that your credit history is good enough to clear mortgage application hurdles, you'll do well to obtain copies of your credit reports before you go for a home loan. That's because it can take weeks ` sometimes even months ` to clear up even simple errors.
"Having the cleanest possible credit report will not only improve your chances of securing a mortgage but make the application process easier," Mr. Gumbinger observes.
Mortgage and credit specialists offer these pointers:
Find out which credit reporting agencies are used by your lender.
Mr. Gumbinger suggests you call the lender's office prior to making your home loan application and ask for the names of bureaus on which the lender relies. These are the reports you'll wait to obtain and, if necessary, correct first.
Many lenders now require two or three credit reports on a mortgage borrower. Chances are these will involve the so-called "big three" nationwide repositories of credit information. They are the TRW Credit Data Division of Orange, Calif.; Trans Union Corp. of Chicago and Equifax Credit Information Services, based in Atlanta.
Phone the local offices of the credit bureaus to obtain copies of your reports.
If you've recently been denied credit (perhaps when you sought a credit card or car loan), you're entitled to obtain a report from one or more of these credit bureaus at no charge. Otherwise, the maximum permissible charge in Maryland is $5 per report.
Typically it takes just a few days after a credit bureau receives your check for a copy of your report to arrive in the mail.
Review all parts of your credit report.
Credit reports contain no subjective information about your social life, politics, religion or medical history, says Mr. Kaplan of the Washington-based Associated Credit Bureaus. But virtually every one of the factual items contained in the report can affect your credit future ` including identifying information such as your address, Social Security number and the spelling of your name.
Anecdotes about credit mix-ups involving fathers and their juniors abound, as do stories about those who have common names or use nicknames.
Credit reports also contain a small amount of public-record information, such as reports of bankruptcy information, tax liens, foreclosure and court judgments. (They rarely include data from the IRS, however, and almost never include court information irrelevant to your financial life, such as whether or not you have traffic tickets.)
The important thing here is to be sure that legal problems that have been cleared up are removed from your report. Don't assume, for instance, that a judgment in a legal dispute has been removed from your record after you've reached an out-of-court settlement with the other party.