Checking your credit

With home buying and refinancing at high levels, checking credit reports should be on everyone's list of financial obligations. Good credit can lead to a magical world of cheap rates and good terms, while erroneous credit reports can unfairly raise the cost of borrowing.

Tip #2 - Checking Your Credit

Lenders typically look at three credit reports when reviewing mortgage applications, the argument being that three reports may identify credit issues that a single report would miss.

So what steps can you take to make your credit report stronger?

Are there entries which are factually incorrect? If yes, contact the credit reporting agency by certified mail, with a return receipt requested. Lenders have 30 days from receipt to correct or confirm a challenged entry.

Does the report include information regarding someone else? If you are "Fred Smith" and not "Fred Smith, Jr." or some other individual, then the report needs to be corrected.

Late payments are a huge no-no with lenders and can quickly knock down credit scores. Payments are "late" for credit reporting purposes when they are 30 days overdue. Caution: it's possible to have an item which does not show up on a credit report (because it's not 30 days overdue) and yet is late under your agreement with a lender or credit provider. If a payment is overdue, you could face penalties, fees and other problems. The bottom line: always pay bills in full, pay on time and mail early enough to easily make payment deadlines.

What are your debts? Lenders look at real estate, installment debt such as a car payment, revolving accounts such as credit cards and collection claims, in addition to other obligations. Check the numbers to assure they are right.

Is the address information accurate? The wrong address may also mean incorrect credit references.

Is your Social Security number correct? A single wrong digit and the whole credit report is likely to be rife with errors.

How many credit inquires have you made in the past 90 days? In this case, lenders want to know if you have recently extended your credit obligations or opened new accounts. The concern is that maybe the high cash balances that appear on the credit report are really just evidence of increased debts rather than savings and good cash management.

Do you have any delinquent credit accounts? Each credit report will also provide credit scores, a shorthand way to evaluate your overall financial performance. Higher is better, and on most scales anything over 720 should elate lenders.

What to do if you have bad credit? Pay bills on time, reduce debts and build savings. None of this will happen quickly or automatically, but over time your credit report will shape up.

Want more information? One good option works like this: your real estate broker can arrange for you to have your credit report reviewed by an experienced lender.

Stay tuned for tomorrow's Tip #3 - "All About Lenders Fees."

We certainly hope you enjoyed this report. Please feel free to forward it to anybody who might benefit from the information.