Getting Credit

Your credit rating, or the record of how well you have done with borrowing money and paying it back in the past, is a very important measure to a lender. It tells them both of your ability to pay back borrowed money and of your willingness to do so. You need good credit to get a mortgage, but you don't need perfect credit. Even if you have had problems with repaying loans or paying bills in the past, you need to get a copy of your current credit report and deal with the problems that are shown there and make any possible improvements to your record.

Credit Checks & Credit Reports

When you apply for a mortgage, a lender will do a credit check on you, that is, ask a credit reporting agency for your credit report and that of your co-borrower. This report is basically an assessment of your credit history.  You are entitled to a free credit report every year from each of the three credit reporting agencies - Equifax, Experian and Transunion.  Visit www.AnnualCreditReport.com for more information on how to get your free reports.

Repairing Errors in Credit Reports

Check your credit report carefully. Most unfavorable reports older than seven years are required by law to be removed from your report. There also may be information that is not up to date and incomplete. You may have paid off debts that are reported as still unpaid, for instance. You have the right to have any mistakes corrected at no charge to you. Instructions for making corrections will be included in your report.

It is worth challenging the credit agency about items that you think are unfair. If you have an unresolved dispute with a creditor, the credit agency must include your explanation of the situation in future credit reports.

Repairing Bad Credit

You cannot legally ask the credit agency to remove accurate information from your credit report. If you have had a car repossessed, declared bankruptcy, not repaid a loan, or had a house foreclosed on you will probably have a difficult time getting a mortgage. While the lifespan of most items listed on your credit report is seven years, bankruptcy stays on your credit report for ten years. The best thing to do in this situation is be very careful to pay your bills on time and to wait until old, less favorable items cycle off your credit report. Showing lenders that you are serious about your current financial obligations is the best thing you can do to improve a bad credit report.

Establishing a Credit Record

If you have no credit record either good or bad, now is the time to establish one. Lenders want to see a track record of debts owed and duly repaid. If you do not have a traditional credit record that shows payments made on credit card purchases, a car loan, or a student loan, it is still possible to establish a credit history. You can build a non-traditional credit history by documenting your monthly rent payments to previous landlords and your monthly payments to utilities companies for electricity, gas, water, and telephone services. You will need copies of the bills you pay and copies of the cancelled checks you paid them with. You can also ask your landlord or the utility company to write a letter that says how long you have been a customer and how well you have paid your bills.


Step 4 - Purchase Assistance