You’ve been in the market for a new home, and want to apply for a home loan to get the dream house you’ve always wanted. You finally apply, and you’re devastated to find out that you were turned down for your loan, or your interest rate for the loan is sky high. The reason for being turned down for your loan or given a high interest rate is all due to your credit score and how the lender interprets the information when they check your ability to pay the loan back. (Fannie Mae requirements)
What can you do? First of all, if the lender you applied with denied your loan, or the interest rate you were quoted was high based on your credit score, under the Equal Credit Opportunity Act, (ECOA), they’re required to:
- give you the reason/reasons for denying your loan
- give you your actual credit score
- give you the name, address and phone number of the credit reporting agency that provided the report used in determining your credit worthiness
- tell you about your right to obtain a free copy of your credit report from the agency that provided the report within 60 days of denial
- explain how you can fix mistakes or add information to your credit report
Repairing Your Credit in Time for a Home Loan
You can raise your score before applying for the loan. Don’t wait until the last minute when you’re applying for a loan to try to raise your score. It will take some time to get your credit turned around. The better your scores are, the more chance you’ll have to get a loan at a better interest rate. Obtain copies of all three of your credit reports. You may request a free copy each year at annualcreditreport.com or call (877) 322-8228.
Look them over to see if there are any incorrect entries on them that could hurt your chances for a loan. Dispute anything that shouldn’t be on your reports. If your report shows negative items that are accurate, try to resolve them by paying those debts off – even if it’s a little at a time.
Pay as much as possible on a regular basis to show that you’re trying hard to repay your debt. If the creditors see that you’re trying, they’ll be more willing to report it to the bureaus, which would affect your credit scores in a positive manner.
If you know an item on your credit report is incorrect you have every right to dispute it. If the credit reporting agencies can’t verify the information within a certain time-frame, they’re required to delete that item from their reports. Although you may dispute it, there’s no guarantee that even if the credit reporting company deletes that item, it won’t reappear later on when they’re finally able to verify the information.
Make sure you keep all of your accounts and bills up to date and current. Even late payments show up on those reports and will affect your credit score. The more positive items that are reported, the better it will look to potential lenders.
Unfortunately, some things will be hard or impossible to have removed from your reports, but don’t let that stop you from trying hard to get rid of the negative items. Don’t be afraid to ask the credit reporting companies to re-investigate, since it sometimes helps.
Unfavorable decision regarding an application you’ve filled out? Tap here for a handy letter you can use to send for an explanation.
Helping Hoosiers Home