Your Credit Score: What it is, How it Helps (or Prevents) Qualifying for a Mortgage
In a sense, your credit report is a sort of fiscal fitness statement of your credit habits.
It names your credit accounts, identifies them by type and tracks balances, credit limits, payments, available credit, open-or-closed status and other information that reveals how well or how poorly you pay each account.
The report, which is one of the primary factors in determining whether you qualify for a traditional or bad credit mortgage loan, also documents your credit requests and notices of liens, judgments and other “derogatory” remarks, remarks from the consumer, and other information.
When you apply for a bad credit mortgage or other credit, the creditor takes a look at your credit report, among other documents and data, to determine if you qualify and to determine how much credit it will grant you. It’s a good idea to keep tabs on your credit report so you can correct any mistakes that could adversely affect your application, and to improve credit whenever possible.
An unblemished credit report not only gives you fast access to credit, you also pay less in interest than you would if your report contains blemishes.
You are entitled to one free credit report a year from any of the three big credit bureaus, Experian, TransUnion, and Equfiax. But beware of “impostor” websites that pose as “free credit report” but which are only questionable marketing gimmicks designed to enroll you in credit-report monitoring and other credit services in exchange for granting you “free” access.
A credit report is not the same as a credit score, which is a numerical analysis of your credit worthiness at a certain point in time, and it not available under the free report provision. If you are looking for your score, note that many people are uninformed or misinformed. Two things are rarely mentioned:
- Make sure that the mortgage broker you are using is aware of the existence of different versions of software used for the various scoring systems. Older versions are not as forgiving (i.e., they produce lower scores) as the newest, up-to-date version, and many resellers of credit reports never bother to disclose this to the broker, much less the consumer.
- Consumers shopping for a home mortgage loan who request their own credit scores are not going to be given the same midscore they would be given in a tri-merge credit report produced for a mortgage broker, which is usually a decent amount lower.
The botton line: Our credit scoring system, while better than nothing, is still full of inaccuracies, lacks many operating standards and is in need of a serious overhaul. Bear this in mind as you begin the process, and get a head start on it. You may need all the time you have to clear things up and ensure that you get the best deal.