Your credit is a big factor in determining if you get approved for a mortgage, and what interest rate you get. The worse your credit, the higher your interest rate will be in general.
Being late on a mortgage in the past is something lenders pay close attention to, but it doesn’t mean you can’t refinance. There are lenders that work with borrowers who are behind on their mortgages by more than 30 days.
Credit errors
One of the ways credit is damaged is when errors show up on your credit report.
This can happen in a variety of ways:
Your identity is stolen by strangers
Family members have signed up for services such as cell phones that go to collections
You co-signed a loan to help someone else get a loan, and now they’re not paying or paying late and your credit is affected
Complete errors
Typical credit report
A typical credit report lists several types of credit:
Open credit lines in good standing
Open credit lines that are in bad standing because there are late payments
Closed credit lines
A line of credit can be a credit card, a car loan, student loans, etc. Each of these is considered a “trade line”.
Each trade line on your credit report typically lists:
How many times you were late by 30 days
How many times you were late by 60 days
How many times you were late by 90 days
Late even longer than this
Creditors
A credit report also lists the name of the current creditor. Sometimes these can be names you don’t recognize. This is usually because it is the name of a credit agency that has purchased your “bad debt” to collect on.
The report also lists the account number for the trade line, such as a loan number or the credit agency’s new account number for your debt. This is a reference point you can use when you contact them. Credit reports can also contain the contact information for these creditors, such as an address or phone number.
Disputing errors
You can dispute errors in writing and try to resolve outstanding issues. If you pay off something that is correctly listed as a collection, you may want to get a letter confirming this payment that you can submit to the credit bureaus to update your credit report.
Updates should be submitted to the three credit bureaus so they can update your credit.
There are third party services that offer to “clean up your credit”. Some of them are not very useful. Some of the people working at these outfits know as much about credit as you do. It is your call in using one of these third parties, but be careful.
This can be a tedious and time consuming process. Sometimes you will win, sometimes you won’t.
Better credit can help in all kinds of ways. If you have the time, you should review your credit in advance of looking for a purchase loan or a refinance.
The difference between great credit and bad credit can be thousands of dollars over time.
For more information visit www.archerpacific.com
Loan Library.
The author is the owner of Archer Pacific, a mortgage company. The firm's website, http://www.archerpacific.com, has extensive resources and tips on many mortgage topics.
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