Examining Your Credit History

As indicated earlier, your credit report and history are key to obtaining your home loan. We encourage you to view your credit report yourself, prior to the lender’s viewing of it, by contacting one or all three of the major credit reporting companies: Equifax, Experian, and TransUnion. All you have to do is call and request it. Once you receive it, check the "high credit limit," "total loan," and "past due" columns. It is a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. You are entitled to one free credit report a year from each of the 3 credit reporting companies.

Credit reporting companies:

• Experian (800) 682-7954 www.experian.com
• Equifax (800) 685-1111 www.equifax.com
• TransUnion (800) 888-4213 www.transunion.com

You can also get a copy of your credit history at the following online locations:

www.freecreditreport.com
www.creditreports.com

What if I find a mistake in my credit history?
You can correct simple mistakes by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders usually understand about legitimate problems. Once you have done that, your mortgage professional can help get the error corrected sooner.

What about my overall (or FICO) score? What does it mean?
Prior to the late 1990s, credit scoring had little to do with mortgage lending. When reviewing your credit worthiness, an underwriter would make a subjective decision based on past payment history. Then things changed.

Lenders studied the relationship between credit scores and mortgage delinquencies and found a definite relationship. Almost half of those borrowers with FICO scores below 550 became ninety days delinquent at least once during their mortgage. On the other hand, only two out of every 10,000 borrowers with FICO scores above eight hundred became delinquent.

When can I stretch the percentages?
Depending on your area's housing market, lenders sometimes will allow you to stretch their allowable debt ratios. One of the best ways to encourage your lender to do so is to increase your down payment, as indicated in the following chart:

Allowable Monthly Housing Expense

Underwriters sometimes also will stretch the ratios for other "compensating factors," including:

• Strong cash reserves after close of escrow
• A new payment that’s only slightly higher than current rent or mortgage payment
• A history of increasing earning capabilities
• A history of an ability to save money
• A large cash down payment