Mortgage lenders today rely on credit scores to determine if borrowers are good risks. Borrowers with low credit scores may have to pay higher interest rates on their mortgage loans. Those with particularly bad credit reports may not even qualify for a mortgage loan at all.
Credit scores are based on the credit reports put together by the big three credit bureaus: TransUnion, Experian and Equifax. Sometimes, though, these credit reports might have errors. And these errors can cause borrowers' credit scores to drop through no fault of their own.
Credit Reports Aren't Always Perfect
Credit reports might list missed payments that a borrower actually paid on time. They might list open credit-card accounts that borrowers had closed years ago. That's why it's important for people hoping to take out loans to request copies of their mortgage reports. People are entitled to free copies, and can request them from the Web site AnnualCreditReport.com.
Once borrowers receive a copy of their credit report, they should then study it carefully. They should look for any information that appears suspicious. Any error, no matter how small, can damage a credit score.
Fixing Credit Mistakes
- Borrowers who do discover mistakes in their credit reports should immediately contact the credit bureau that is publishing the incorrect information. If there really is a mistake, the Fair Credit Reporting Act requires the credit bureaus to fix it.
- Borrowers will need to contact the credit bureaus in writing. They should include any documentation that supports their contention that an error was made.
- It's important for borrowers to be patient. It can take a long time for the credit bureaus to fix a problem. That's why it's so important for borrowers to bring mistakes to the attention of the big three credit bureaus as quickly as possible.
Why it's Important to Fix Credit Report Mistakes
Borrowers who either ignore mistakes in their credit reports or don't take the steps necessary to correct them might be making a big financial mistake. A poor credit score might make the difference between paying an interest rate of 6% or 7% on a 30-year fixed-rate mortgage. That can add to some serious wasted dollars over the years.
For a $250,000 loan, a borrower would pay $1,498.88 a month for a 30-year fixed-rate mortgage loan at 6%. But if that same 30-year fixed-rate loan had an interest rate of 7%, the borrower would instead pay $1,663.26 a month. That's difference of $1,972.56 a year.
Dan Rafter - I'm a freelance writer with more than 15 years experience covering the residential and commercial real estate industries. Of course, this ...
