What to Know About Credit Reporting Agencies When Buying a Home
Are you contemplating purchasing a home for the first time? You will undoubtedly be getting a mortgage unless you are financially independent. The vast majority of people do not fall into this category!
When you apply for a loan, your lender will want to know if you have a history of failing to pay your debts, and they do this by checking with credit reporting agencies. There are three central agencies, often called credit bureaus, collecting financial information on Americans.
Equifax, Experian, and TransUnion are the most used publicly traded bureaus, though there are smaller, more specialized agencies operating as well. Lenders report information on you to these agencies. This information might include your debt with them, whether you have defaulted on a loan, and if you pay your bills on time.
The agencies will also find information about you in the public records. If you have filed for bankruptcy or have liens against you, they will be found and added to your credit report compiled by the bureaus. Before buying a home, it will essential to get a hold of your credit report and check for any errors. A mistake on your report could negatively impact your ability to get the best rates and terms with your lender.
Also, whether you are getting a construction loan to build your own home or a traditional mortgage to purchase a resale, the lender will use the information to help make a lending decision.
The credit reporting agencies make money by selling your information to businesses that have a legal reason to view it. This could be a lender where you have applied for credit, though it doesn't typically include employers or landlords unless you have given your permission.
Let's review the leading credit agencies, including Experian, Equifax, and Transunion.
Equifax
Founded in 1899 by brothers Guy and Gator Woolford, Equifax is headquartered in Atlanta, Georgia, and currently operates in 24 countries. They collect information on over 800 million people around the world and provide credit monitoring services to consumers.
In recent years, the business had faced controversy when it was revealed that they had been hacked, and the personal information of nearly 146 million customers had been breached. The attackers remained undetected in Equifax's database for over four months stealing personal data. Equifax has created a tool for customers to check if they were affected by the 2017 hack, with free monitoring for those included in the data breach.
Equifax and Transunion both provide credit information to the well-known company, Credit Karma. If you are not familiar with Credit Karma, it is a fantastic site that offers a wealth of knowledge to improve your credit standing. If you are going to be buying a home and would like to build your credit, Credit Karma would be worth checking out. A first-time homebuyer can use the site and see precisely how a credit decision can impact your score. For example, if you cancel a credit card.
One thing that should be made abundantly clear about Credit Karma is that lenders do not use their credit scores to determine lending decisions. Mortgage companies and banks rely on information provided by FICO scores. Many real estate agents become confused about Credit Karma by not understanding this key point.
Experian
Experian traces its roots back to a group of London tailors who exchanged information on non-paying customers in 1803. In 1826 an organization with the catchy name "The Society of Guardians for the Protection of Tradesmen against Swindlers, Sharpers and other Fraudulent Persons" was established in Manchester, England. This organization would publish a circular among members, about people who had failed to pay their debts. It has since expanded to operating in 39 countries with data on over 1 billion people.
Experian offers analytic and marketing assistance to business, along with its credit reporting services. They provide fraud and identity protection to consumers as well as access to your credit history. If you pay a subscription to the business, they will give you access to their FICO 8 credit score tracker.
TransUnion
Founded in 1968, TransUnion operates from Chicago, Illinois, with operations in 30 countries. The business began as a railroad leasing company, acquiring the Credit Bureau of Cook County in 1969 and moving in a different direction. Today they maintain files on more than a billion people worldwide.
They offer credit monitoring to consumers for a monthly subscription, with help to protect you from identity theft. They have an app that quickly allows you to lock your credit if you suspect there has been fraudulent activity directed against you.
Legislation on Credit Bureaus
With all the information these organizations collect on you, it is good to know that the Fair Credit Reporting Act governs how these credit bureaus do business. They are kept in check by the Federal Trade Commission to ensure they act responsibly with people's sensitive data.
While they provide analytical services to businesses, they don't make judgments on whether you should get credit or the interest rates you'll pay. It is left up to the financial companies, which buy these services, to make the decisions on your application.
Business Relationships
The different credit agencies have separate agreements with banks and other businesses you might have financial accounts with. This means that the data each of them has on you isn't going to be the same. If there is a fraud alert or credit freeze on your account, this will be shared between the bureaus, but this is the only circumstance where they share information.
If you are going to check your credit history report, ideally, you'll need to get reports from all three agencies. They do offer free credit reports once per year, and you can go to the AnnualCreditReport.com site to get yours. If you have been denied credit, you also have a 60-day window to get a free report to find out why.
If you do find any errors in your credit reports, it could be hurting your credit. Make sure that you dispute anything wrong in your reports with the credit bureau responsible.
Final Thoughts on Credit Reporting Agencies
When you are buying a home, the credit reporting agencies can indirectly have a significant impact on your purchase. The information they provide a lender can and will be used to make lending decisions. Hopefully, you know have a better understanding of what the credit agencies do and how they work.
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