What’s impacting your credit score?
Remember a few years ago when taking out a mortgage was easy? If a lender decided a borrower was too risky, the potential homebuyer could likely find a subprime lender or a banker offering some loan options designed to get people with less-than-stellar credit into a home.
After a few years of somewhat freewheeling lending practices, we saw a lot of defaults starting around 2007. Some of the riskier mortgages offered some fantastic initial terms, but those were replaced after about five years with higher interest rates and other things that drove up monthly mortgage payments.
Some mortgage payments on those more exotic loan products went up by hundreds of dollars per month. Those borrowers who were making their payments just fine after the initial mortgage terms found themselves unable to afford their new obligations. A rash of foreclosures followed – more bad news for an economy that was already struggling.
As a result of all those foreclosures, lenders and the federal government started putting reforms in place. More often than not, the reforms were established to address risk reduction – to make sure that people who took out mortgages would probably pay them back.
With that emphasis on risk reduction came the increased importance of credit scores. While people with lower credit scores may have had to forgo the best interest rates and such in the past, new risk reduction measures meant that a good number of people who could take out mortgages before the subprime lending crisis found themselves unable to get loans under new, stricter regulations.
That being the case, a good credit report is vital in the current lending environment. People don’t have to have perfect credit to take out mortgages, but it’s a good idea to see what negative items are on a credit report prior to applying for a loan.
Fortunately, the federal government allows people to pull their credit reports and inspect them once a year. That service is free to consumers and is available on the Internet through annualcreditreport.com. Consumers can also access their credit reports by calling (877)322-8228.
While those reports won’t show consumers a credit score, they do reveal all items impacting those scores. The reports are from the three major credit reporting bureaus – Experian, Equifax and TransUnion.
It’s a good idea to review those reports for at least two reasons. For one thing, there may be some items on the credit reports that are inaccurate but negatively impact credit scores. The reports include instructions on how to dispute inaccurate items. Once those are gone, a credit score will improve.
Also, reviewing those reports can reveal is someone is a victim of identity theft. If someone is running loose taking out credit cards and applying for loans in your name, you’ll want to know about that and start taking steps to correct the damage done. Finally, it’s important to realize that late payments, judgments, bankruptcies, foreclosures and other items on a credit report negatively impact your credit score. Finding out how many of those items – if any – show up and taking steps to improve your payment history is critical to boosting a credit score.
Few people have perfect credit, but that doesn’t mean there aren’t loan products available to people wanting to take out mortgages. A good way to find out what options are available to you is to get in touch with your local mortgage banker and ask.
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.