In 2003, the Fair Credit Reporting Act (FCRA) was passed, sweeping into effect a wealth of changes aimed at protecting consumers of all demographic and socio-economic backgrounds who use credit cards. Perhaps the most important part of this legislation was the mandate that all U.S. citizens are entitled to a free credit report from each of the three main bureaus each calendar year. How should you go about obtaining your free credit report?
If you’re like many people these days, you’re thinking about refinancing or buying a new home; there’s probably about one million things you’re mentally juggling right now. Not to stress you out even more, but before you get too busy thinking of how you’ll spend the money you’ll save from a refinance or what your dream home looks like, stop and double check that you’ll actually qualify a mortgage.
Obtaining a mortgage is a complicated business, and there are a plethora of factors that, well, factor into qualifying for a mortgage such as setting your limit, your rate, etc. One of the big indicators of what you’ll qualify for is your credit score. This is one of the initial pieces of information a lender will use to determine if they can help you.
I want to stress that there are a lot of different things mortgage lenders look at, so don’t go telling people that I told you anything crazy like as long as your credit score is at a certain mark you can get a million dollar loan or something like that.
That being said, your score is a good indicator of what kind of financing you’ll be able to get. One way to start off on the wrong foot is to apply for a mortgage without having an idea of where your credit is at.
And, contrary to popular opinion, a soft credit pull – the kind you’d be doing if you were just checking up on your credit yourself – won’t negatively impact your score.
It’s a good rule of thumb to check your credit score on your own about once a year, but you’ll want to check it a few months before you apply for a mortgage so that you’ll have time to build it up if it’s too low.
How Credit Reports Work
There are three main credit reporting agencies (CRAs): Equifax, Experian and TransUnion, which all collect credit information including your payment history, the length of your payment history, how much debt you have, how much credit you have available and what your monthly debts are. CRAs don’t decide if you have good credit or not, they just collect all of your information.
There are different ways that your credit score is determined from the reports. The most common formulas were developed by the Fair Isaac Corporation. You’ve probably heard of a FICO score, and this is where it comes from.
If you find what you believe is an error on your credit report, you can dispute it to make sure your credit reports are correct so you have an accurate credit score.
Check Your Credit Score
There are a lot of different companies that will generate a credit score for you. Quizzle.com is one very reliable website for checking your credit. It offers free credit reports and scores, helps you to understand what everything means and helps you build your credit.
Quizzle.com’s CEO Todd Albery explains that maintaining your credit is really important, stating that “At Quizzle.com we believe it’s important for you to have a complete understanding of your credit report and score before entering the mortgage process. Make sure that your report is 100% accurate and that you are in the best position to take advantage of today’s great rates.”
Once you get your score, it’s important to understand what that number means for you, and, if it’s low, how to boost it. Generally speaking, 580 is the absolute lowest score you can have and still qualify for a mortgage – an FHA mortgage, specifically. Usually, you need at least a 620 to qualify. If you’re up at 720 or higher, you’ll get into a lower mortgage rate bracket because you’re seen as a pretty worth-while risk for the lender. 780 is a great credit score and 850 is about as good as it gets.
If your credit is not so hot, there are a bunch of things you can do to get it up like pay off outstanding debts, make sure to pay all of your bills on time and consolidate debt so it’s easier to pay off. Keep in mind, though, that just getting rid of credits cards won’t necessarily boost your credit and could actually hurt it as author Christine Bilger explains.
If you have some questions that aren’t answered here, or you’ve got some other great tips for maintaining your credit, share them with us below!
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