Get Finances in order with Free Report
It makes sense to make sure your finances are in order before you start looking for a home. Texas residents will have online access to free credit reports by June, making that process a little easier.
The Fair and Accurate Credit Transactions Act of 2003 made it possible for consumers to access free copies of credit reports, which list a consumer’s financial history, including total debt and whether you pay bills on time. The law was designed to help us better monitor the reports used by banks and merchants to determine if they will lend to a consumer, and at what interest rate.
As of December, those living n Western states, along with Alaska and Hawaii, can obtain free annual copies of the reports from the three major credit agencies: Equifax, Experian and TransUnion. Those in the south (including Texas) can get their reports online as of June 1.
Checking your credit report regularly is the best way to spot identity theft, credit report errors or other financial missteps that could affect your ability to buy a home. Keep an eye out for:
- Accounts that are not yours;
- Wrong ADDRESSES/contact information;
- Delinquencies on your report after the seven-year time limit has passed;
- Notices of late payments you think were on time; and
- Multiple collection=agency notices for a single debt.
All of these are red flags that could affect your ability to qualify for a loan or obtain a favorable interest rate.
So what do banks look at when they are considering giving home buyers a mortgage loan? First is your credit score- the number lenders use to decide your individual credit risk. Those with higher scores are less likely to default on a loan.
Your credit score is determined by putting the information from your credit report into a formula that generates a score, which in turn tells a lender your credit risk. As far as what is most important on your report and what determines your score, about 35 percent is based on your payment history.
That is why it is crucial to send in every payment on time. Approximately 30 percent is based on what you owe to creditors – for your car, any current mortgages and installment (credit card) debt.
Keep in mind although you might have a $100 balance on that department store credit card, the credit reporting agency also looks at the potential you could spend, given the opportunity. So, if your limit at Foley’s is $2,000, that is the amount the agency considers – even though that number does not reflect your balance.
Some credit experts advise getting rid of department-store credit cards and using a debit or credit card instead. However, if you plan to buy a home soon, do not make any moves regarding your credit score. Some actions you think will help may lower your score.
About 15 percent of your credit score is weighted toward the length of your credit history – how long you have had credit. If you are fresh out of school and have not yet had a chance to establish credit, now is the time to apply for a low-interest rate credit card and ay it off on time every month. Those consistent payments will help establish a good credit history, as will paying off any student loans.
Ten percent of your score is based on the type of credit you use – whether it is a credit card or loans. Finally, the last 10 percent is weighted toward new credit. Buying a house? Hold off on that new car purchase until after your loan has closed.
Those who use the new online request site for credit reports will be asked for personal information so the credit agencies can match them accurately with their reports. The site is encrypted to ensure a private and secure connection.
One the information is verified, your report will pop up on the screen. However, you will not be able to fix any errors. As before, you must go directly to the credit-reporting agency to correct any mistakes. Their sites are at:
For more information about credit reports and fixing errors, visit the Privacy Rights Clearinghouse at www.privacyrights.org; and the Indentify Theft Resource Center at www.idtheftcenter.org.
To request your report online, visit www.annualcreditreport.com. Or, you can call 877-322-8228. You can mail a request to Annual Credit Request Service, P; O. 105281, Atlanta, Ga. 30348-5281