Your credit report tells a detailed story about you, your financial accounts and your payment history. Potential lenders and creditors may accept or deny your applications for credit based in part on information in your credit report, as well as their own lending criteria.
Among the factors lenders are likely to evaluate:
- Payment history: Are you paying your credit accounts as agreed, or do you have missed or late payments? Do you have accounts in collection? While a few missed payments may not result in a denial, they can result in less favorable loan terms.
- Debt to credit ratio: Using a large percentage of your available credit can be a red flag to potential lenders.
- Length of credit history: Do you have a long track record of responsible credit use?
- Types of credit: Lenders generally like to see a good mix of different credit types and that you have previously used multiple sources of credit reliably.
- New accounts: Have you opened a large number of new credit accounts recently? If so, lenders may question your ability to repay.
In addition to playing a role in a car purchase, your credit may also figure into things like car rentals and car insurance. Car rental companies may use credit checks as a way of determining the risk associated with renting to you if you are using a debit card instead of a credit card. If the company pulls your credit report, it may impact your credit score. You may want to consider using a credit card instead.
Many U.S. car insurance companies use credit-based insurance scores to help determine risk, or the likelihood of claims, and an inquiry will be generated when an insurance company checks your credit. However, insurance inquiries on your credit report are generally not visible to lenders.
One important thing you can do as soon as you start thinking about buying a home is checking your credit report. Ideally, this should be done at least six months before you purchase to give yourself time to dispute any information you believe is inaccurate or incomplete, if needed. It’s also important to know how your payment history is being reported by your current creditors.
Look for any information that might be inaccurate or incomplete. Is your personal information, including your address, correct and up to date? Are there any addresses you don’t recognize? Are all of the accounts listed complete and accurate? Do the balances appear accurate? Are there any accounts you don’t recognize?
If you see something that appears inaccurate or incomplete, contact the company. You can also file a dispute with the credit bureau that provided the report. To file a dispute with Equifax, visit our dispute page.
Other steps to take when preparing to buy a home might include:
- Gather any required documents, such as tax returns, pay stubs, and bank statements that you will need to apply for a mortgage.
- Figure out how much home you can afford. Online mortgage calculators may help. Remember a home’s purchase price is only part of the picture; you may also be responsible for a down payment, closing costs, taxes, insurance and other expenses.
Technology has changed the process of obtaining a mortgage, with online mortgages becoming more popular. But because so much personal information is required to get a mortgage, it’s a good idea to keep security in mind.
Here are some suggestions:
- Use reputable companies. Check out lenders you’re unfamiliar with. Make sure the company’s web site is secure and offers a contact number for you to call with any questions or concerns. You can check to see if each lender you consider is registered in your state through the Nationwide Multistate Licensing System Registry. You can also search the Better Business Bureau for information on lenders.
- Use a secure network. Don’t apply for loans on public WiFi.
- Be careful sending information over email. Make sure the company uses a secure, password-protected online portal. If you’re faxing documents, make sure someone is on the receiving end to pick them up.
- Don’t respond to suspicious emails. If you receive an email that seems to be from your lender, but it appears suspicious, contact the company to verify it’s legitimate
- Monitor your credit reports and bank accounts after you’ve applied. Keeping an eye on your credit reports and accounts may help spot suspicious activity early.