Your Credit and Qualifying for Home Purchase Loans

May 22, 2005 LOS ANGELES -- As with any product for sale on the open market, whether tangible or intangible, smart shoppers know that taking the time to research prices and options always brings the best deal.

Specifically regarding interest rates for home loans there is a twist to this theory. You may wonder why a neighbor with a model-match home and similar income was able to receive a rate quote for his home refinance that was quite different than the one you received. His may, or may not, be lower or higher even if the same lender offered mortgage quotes to both of you at roughly the same time. The perplexing question is why this would happen. The simple answer is: Credit worthiness.

It is important to understand that there are a cornucopia of various tiers a home buyer or owner can land upon when trying to qualify, and it is all based upon good or bad credit score. Naturally, one must assume that keeping their credit score as high possible will provide the best chance at receiving the lowest interest rate available.

There is more to accomplishing this task than many would think. For instance, many who fall into the envelope of buyers seeking a bad credit home loan may not actually belong there. Perhaps the buyer assumes his FICO score is low simply based upon what his credit report indicated on an overall basis, and didn't investigate the comprehensive data on his printout well enough. Assuming this is true, there is possibility that the potential home loan candidate has incorrect, incomplete or outdated information the credit report. This is quite common. It is also a good way to assure you get a lousy rate for a home loan.

Incorrect information or data that has worn out its welcome on your credit report can be omitted, but the truth of the matter is that it takes time and work, as with anything rewarding at fruition. The time-span is not too bad, however. 2-3 months can provide an aggressive "credit report cleaner" substantial results, after which time he or she can actively and confidently shop for the best interest rate. If there is incorrect data on your report, creditors have 30 days to update the incorrect record.

You can repair credit yourself. Many don't know this and are affected by scare tactics used by shoddy credit repair companies prominently seen on the internet. Don't submit to believing statements indicating it can't be done all by yourself. Below we explain how.

Examine your credit report:

Naturally, this is the priority in the chronological scale of amending ding's on your report. Start by obtaining a credit report printout from the 3 bureaus. These include Equifax, TransUnion and Experian. Begin by finding credit reporting websites that can extract data from all three companies simultaneously. This is inexpensive and easy to find using a search engine or directory such as Yahoo!.

Check the report for inaccurate information:

Put on your reading glasses and take time to thoroughly compare against your knowledge each revolving or other credit extension listing in the report. Ask yourself if listings indicating debts are correct. Then examine the dates of the credit extended and the last reporting date for each creditor to be sure they are not "stale" or outdated. Bad credit reporting should fall off within 5 to 7 years. Anything aged past five years should be contested by default. Also make certain that all reporting by creditors actually are related to accounts belonging to you. Be sure there are no suspicious inquiries by creditors that you did not initiate. Identity theft is as common as the flu these days.

Fixing credit challenges:

Assuming your credit report shows errors, do the obvious by disputing each incidence. This is quite easy. In fact, all 3 credit bureaus clearly explain their required steps to dispute date found therein at their online presences. More good news is that disputing information is free of charge. The bottom line is that creditors have exactly 30 calendar days to respond to disputes. If the credit extending company does not verify the validity of the adverse credit shown on your report within that 30 days the credit bureau is required by law to expunge the record thereof. Be sure all 3 credit reporting services expunge the data or you have worked for nothing. Don't stop before the finish line.

After getting incorrect or dated information cleaned, be sure that any mortgage company you deal with have the most recent reports after they are updated. If there is a case of flagrant misinformation on the report your mortgage broker or banker can initiate on your behalf what is known as a "rapid restoring." In this process, the mortgage company submits a dispute on your behalf and can possibly have the problem handled in less than 3 days. As with anything quick these days, you will have to pay good money to have this done, but in the end it may pay off if it is necessary to lock a rate while they are still at a low level. Regarding cost, a good example would be that rapid re score for, say, 5 errors would run you in the ballpark of $450. This isn't bad when you add up monthly payment savings you will get over a 15 or 30 year mortgage term.

Stay stagnate for a while:

After you have cleaned-up your credit report, and experience a loft in the FICO/Beacon score, it is time to absolutely nothing for a bit. This pertains particularly to those anticipating getting a home purchase loan in the next six months. What we mean by "stagnating" is that you should refrain from applying for a credit card or other credit account in the six months preceding the home loan. Reason for this withholding of credit application is because, unbeknownst to many, your overall score can be adversely affected every time there is an inquiry. And we all know now that lower score equals higher mortgage rate. Article by Nolan Voight, Mortgage Columnist.