Experts recommend that buyers who are unsure of their credit obtain a free copy of their credit report online from all of the three major national credit bureaus: Equifax, Experian and TransUnion. You can do so at AnnualCreditReport.com.
“Credit bureaus allow consumers to pull credit up to three times within the same search area such as auto or home loan,” said Dustin Gaskey, vice president, builder and development services manager at Fidelity National Title Agency. “Credit won’t negatively be impacted if the reports are populated within a three to six month period.”
A credit score is determined from the average of all three credit reports. Scores can range from 300 to 850, depending on payment history, the amount owed and the various types of credit. Sometimes discrepancies can occur, especially if the lender only reports to one credit bureau.
Improving your scores
If your credit needs improvement, there are ways to do that — starting with consistently making payments on time, reducing credit card debt and increasing the amount of savings.
“The good thing is that credit is re-recorded every 30 days,” Gaskey said. “You can make positive changes and immediately start to see a direct impact of those efforts the following month.”
Resolving past delinquencies and derogatory debt and staying away from the maximum limit on credit cards is another way to improve credit.
“It’s actually very beneficial for borrowers to obtain new debt in small factors such as through a secure loan,” said Nikki Krukovsky, senior director of real estate lending at Desert Schools Federal Credit Union as well as the president of the Arizona Mortgage Lenders Association. “It helps to re-establish credit.”
However, homebuyers are strongly discouraged from acquiring new debt or making large purchases during the home financing period. Credit will be run again 30 days prior to closing and lending ability can change dramatically.
“If a buyer adds credit during this time, it can negatively affect not only the credit score, but ultimately the pricing on the mortgage loan,” Krukovsky said. “In addition, new debt can increase the debt-to-income ratio causing the borrower to no longer qualify.”