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Plan Well, Retire Well

Saving and investing your money
Sasha Learns

Sasha Learns: How to Buy a House - The Credit Question


One of the largest factors of purchasing a house comes down to your credit. What does it look like and will you be able to purchase a house with your history and score? People tend to focus on the score, and while it is important – the history is what creates the score. Together with my husband we tackled this credit question in the following few steps.

Check your Credit History

Before you begin talking to a realtor or mortgage lender, you need to check your credit history! When you're considering purchasing a home for the first time, you should pull all three-credit histories from Equifax, TransUnion and Experian. You can access your credit histories free from www.annualcreditreport.com.

Three things to be mindful of:

  1. You can only get a free credit report from each bureau once a year. If you're not 100 percent ready to pull them, another free option would be to check out Credit Karma. **Please be aware that the way Credit Karma makes money is if you take one of their credit recommendations like a loan or new credit card.** While Credit Karma is a good tool, being conscious of this fact can help you make a more informed decision on which website you would like to use.
  1. If you are adamant and want to know your credit score, you have to pay to play. It'll cost around $10 to $15 dollars to get each score from each bureau.
  1. When you pull your credit from www.annualcreditreport.com each credit bureau will ask you for identifying information like your legal name, address, date of birth as well as your social security number. The bureau will then ask you other identifying information found on your credit report such as "Which of the following streets did you live on during 2010-2012?" The questions are multiple choice. If you get your answers wrong three times, you'll be unable to retrieve that report. After that, the bureau will give you a number to call and help you get your credit history.

Check for Errors

Once you have your credit reports in your hand, you need to check for errors. The potential errors could be as simple as your last name is spelled wrong or bigger errors like your credit card showing late payments when you know they were on time. If you really were late on that credit card payment, that's not an error. The credit bureaus will not remove correct information. While late payments or a debt collection can bring a blow to your credit, there are ways to fix it, but more on that next time!

If you do find an error on your credit report, make sure to dispute it as soon as possible, especially if you are on hunt for a house. The Consumer Financial Protection Bureau easily explains here how to dispute your error to the three credit bureaus.

Not all Scores are Equal

Did you know that there are different ways to score your credit? Fellow blogger, Karen Chan in a recent post discussed the new FICO 9 scoring, stating that "The problem is, not all lenders use FICO. And those who do may not upgrade to the new version for quite some time." Lenders use different ways to score your credit; you can think about credit scoring programs like the different versions of iPhones. People are excited for the newest version, but not everyone can afford to upgrade right now. This upgrade style is the same for lenders who use FICO scoring software. It's not that they don't want the upgrade, but maybe they are a small bank who can't afford it or just last month they bought the previous version not knowing the new one was coming out. This is why we need to remember while the score is important; the history is ultimately what makes the score.

Before purchasing a house, you may need to do a few homework items!

  1. Check your credit, see what your history looks like.
  2. Search for any possible errors.
  3. If you do have an error, remember to dispute it.
  4. Remember that different lenders may have different scoring programs for your credit score and that your credit history will create your credit score.

Be on the lookout for my next blog where we'll discuss credit utilization and ways to fix your credit!

Until then,

Sasha



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