June 17th, 2011
The housing market is undoubtedly a buyer’s dream come true at the moment. With so many affordable homes and extremely low interest rates, now’s the time to take advantage of it. And in order to make the most of the market, you want to have the best credit report and score possible.
In her article “5 Surprising Credit Report Errors You Must Fix,” Tara-Nicholle Nelson offers 5 common credit errors that could stand between you and the opportunity to purchase or refinance with the lowest possible rate.
According to Nelson,
In a recent study, 19 percent of American consumers who reported finding an error in their credit reports opted not to dispute the error, even when they were offered $5 to file the dispute! Why not? Well, some said they thought the error was too minor to impact their score, while others said the dispute process seemed too difficult to tackle.
Though any bureaucratic process is a hassle, fixing your credit report and being proactive is something you need to do, and as soon as possible. Here are some errors you want to look out for:
Incorrect account balances. Credit companies check in with your different accounts on a frequent basis in order to update your credit standing. If you pay off a balance on an account, you may not see that change right away. And although it isn’t technically an error, the failure of your credit report to reflect those payments can harm your credit. Lenders are looking to see how many different payments you’re already required to pay per month to determine whether or not you can handle another. If a balance no longer exists, you want them to see that.
Correcting the actual balances of your outstanding bills downward to account for your recent pay-down efforts poses such a large potential improvement impact for your credit score that it might even be worth paying your mortgage professional the $30 to $50 it will cost for them to initiate a Rapid Rescore, which can update your reports to reflect your slimmed-down balances in about 72 hours, compared with the 30 to 60 days you’d expect to wait to see results from a traditional dispute or update.
Incorrect personal information. According to Nelson, of the 19 percent who saw an error on their credit report, 40 percent found it in the “header information,” which contains information like previous address. Though errors in this area don’t directly impact your credit score, they do raise a red flag for lenders for several reasons.
First, incorrect personal information might signal that someone has been tampering with your credit. Credit fraud is currently a huge problem, and it’s definitely a mess that lenders don’t want to get involved in.
Second, incorrect personal information – such as previous address – can raise suspicion that you’re trying to trick the lender. For instance, as Nelson explains, it suggests that you might be attempting to buy a second or investment home, rather than the owner-occupied home that you claim you’re trying to purchase. Loan qualifications and terms are very, very different for these types of properties, and it may cause the lender to question your intentions and credentials.
Bills that were never yours. Like incorrect personal information, inaccurate account information suggests that you have been the victim of credit fraud, and someone is opening accounts with your information. If the incorrect account has been used and there is an outstanding balance, you must contact the credit company immediately. Even if the account has never been used or has been closed, you should still deal with it as soon as possible, as those who initiated the account may still have all of your personal information and could continue to use it.
If the account has been paid on time, it was probably a mix up, rather than the result of credit fraud. This should still be cleared up. Make sure to closely examine the rest of the report to ensure that everything on there is 100 percent correct.
Limits on accounts appear lower than they truly are. Credit limit reflects how much credit you have access to, and therefore how much money you can be trusted to pay back. When your report score is calculated from your credit report, how much credit you have available and how much credit you have used accounts for 30 percent of the score.
Outdated derogatory items. You may have had credit problems in the past that you have worked very hard to correct. Make sure they are corrected when they are supposed to be. Late payments are shown on your credit report for 7 years, while bankruptcy remains for 10.
Fixing these disputes may not cause a dramatic change in your score, but they could cause a dramatic change in your interest rate. As Nelson explains,
If you’re close to a credit tier cutoff, like 620-640 or 740-760, depending on your loan type, even a few points’ difference can be the difference in qualifying for a home or not, or paying a higher mortgage interest rate for the life of your loan.