The Credit Data Big Three
Credit card basics form one of the key features of modern life. When you think about it, it’s pretty amazing that a person can borrow enough to buy a house, based entirely on electronic records. However, the most important thing to know about credit report basics is that lenders will want to understand who you are, as a financial entity. So, it is vitally important that you know too.
The records of almost anything that you have ever officially borrowed are stored in the databases of three very powerful multinational companies: Equifax, Experian and Trans Union. These three companies have made your financial existence their business. Any time a company has agreed to lending you money it is safe to assume that they reported it to at least one of these three agencies.
Financial companies sell your financial information to these services and buy it back, to judge your financial trustworthiness, in deciding whether or not to extend credit to you. This is related to your credit score but it goes into much more detail. Every time you apply for a loan, get credit and whether or not you make your payments is tracked by each of the credit agencies.
Credit Report Basics (As They Relate To Mortgages)
When you decide to purchase a home or refinance your current home, you are going to need approval from your lender before they agree to underwrite your loan. This requires that they get to know who you are. They want to make an accurate estimate of the risk that they will be taking by extending credit to you.
Your lender will request a copy of your records from each of the three agencies. The reports that they will receive will add up to something the size of a telephone directory when printed out, if you have had credit for an adequate length of time to qualify.
Your lender will be looking for records of what you have borrowed in the past, how punctual you were in making your payments and what your financial condition looks like at the time of application. They are trying to establish your behavior and your present net worth, as well as your net worth once they extend credit. Finally they will want to be assured that the monthly payment obligations will fit your budget. All of this information will be available from the records that they source from the three agencies.
Prepare To Be Judged
The laws that govern credit and lending as well as credit reporting state consumers must be able to review their credit files once a year, at no charge. The Federal government has a website that is the only place that is authorized to do this on the World Wide Web. By going to the approved site at www.annualcreditreport.com and requesting your reports.
Not all companies report to all three so you can expect there will be some minor variations on what is posted to your credit report. That is why lenders will be looking at all three reports, they want to make certain that they do not miss any important details. It is prudent to check your credit reports with all three agencies every year, as you are allowed by law. Another good reason is that, because there is the potential for variation in your three credit reports,there is also the potential for some error to crop up in one of them.
One word of caution when you are searching for your free credit report: The only site authorized for this purpose is www.annualcreditreport.com. There are credit-monitoring services and the reporting agencies themselves will offer to give you onetime access with strings attached. Be warned that they will attempt to tie you into a contract for expensive monthly services. While credit monitoring may or may not be something in which you are interested, that is not the objective here. You want to simply establish the credit report basics before you approach any lenders.
Requesting a copy of your three credit reports should be the first step when you are preparing to apply for a home loan. It will help you understand what lenders know about you and you can deal with any obstacles before they derail your application. It’s a matter of credit report basics.