Fix It! Mistakes Will Slow You Down

The smartest thing you can do before applying for a loan is to check your own credit report. If there is bad news on your record, it is definitely best for you to know first. It gives you the chance to clean up your act before striking out in the first place. The second reason to check it yourself is to fix the mistakes. One out of every four consumers has mistakes in their credit report. It can take weeks to correct a faulty report so take care of it before you involve the lender and find the home.

It's Your Credit, You Know

Under federal law, a credit reporting company has a reasonable time to respond to your complaint (normally 30 days). If the error-ridden report is already in the hands of your lender, find out which credit reporting company provided the data. If you ask for a copy of the report within 30 days of the loan denial, the company must send you a copy along with the name of any other lender who has received the same report within the last six months.

If you decide to pull your own report, look to the largest credit reporting company, Experian. If you were denied credit for any reason in the last 60 days, Experian will provide you with a free copy. Their number is 800-682-7654. Trans Union and Equifax also provide reports. Any company whose report has been the cause of denied credit owes you a free copy as well.

What If I Have Skeletons?

Always be honest on your applications about past credit problems. Don't try to sneak anything by or you'll probably be rejected. But keep it in perspective. If the mark on your report is a couple of late payments on a credit card or car payment, write the lender an explanation. Perhaps you were on vacation or lost the payment coupon. The worst case scenario for bad credit is that you will need to spend a year or two cleaning up your act before you buy.

Start Looking for Papers Now

Don't wait until the night before your lender needs your paperwork to start rummaging through old sock drawers and shoe boxes for the information he or she needs. Start now. Once you have checked your own credit report for late or delinquent payments, you are ready to apply for pre-approval. Here is what you need to find:

1. W-2 forms or profit-and-loss statements for the self-employed
2. Pay stubs (usually one month's worth)
3. Bank statements (three month's worth), including checking, savings, and other asset accounts
4. Past two years tax returns

Since you are going to need it anyway, you may want to gather everything else you are going to need for a full loan application.

1. Names and addresses of current employers and prior employers for the past two years
2. debt information, including creditors name and address, monthly payment and balance information on the following:
   1. Charge accounts and credit cards
   2. Car loans
   3. Mortgage loans (if any)
   4. Personal loans
   5. Student loans
3. Asset information. Don't overlook anything, even personal property-all your assets count toward qualifying for a larger loan, including:
   1. Mutual funds, stocks and bonds
   2. Certificates of Deposit (CDs) and money market funds
   3. Family trusts
   4. Whole life insurance policies
   5. Individual Retirement Accounts (IRAs)

TERMS TO KNOW

Application

A form used to apply for a mortgage loan. The application records financial information of a prospective mortgagor.

Asset

Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Certificates of Deposit (CD)

A document written by a bank or other financial institution evidencing a deposit that will be returned with interest at a specified interest rate within a specified time period.

Consumer reporting agency (or bureau)

An organization that prepares reports used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Credit

An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit history

A Record of an individual's open and fully repaid debits used by a lender to determine whether the individual has a history of repaying debts in a timely manner.

Creditor

A person to whom money is owed.

Credit report

A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. See merged credit report.

Credit repository

An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Equal Credit Opportunity Act (ECOA)

A federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Fair Credit Reporting Act

A law that regulates the disclosure of consumer credit reports and histories by reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Money market account

An account that provides Depositors with a slightly higher rate of interest than an ordinary savings account. Money market accounts are not FDIC insured.

 

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