Following last year’s Experian data breach, many people froze their accounts to safeguard them from potential identity thefts. Clients may face some hassles getting approved for a mortgage if they don’t remember to unfreeze their credit first.
“We recommend doing some work upfront to make that process go as smoothly as possible,” said John Danaher, a TransUnion executive, to ABC News. “That involves checking and knowing what your credit standing is and doing work to be preapproved for a loan.
Look at your credit report to determine credit score.
Mortgage lenders look at all three credit reports — TransUnion, Experian and Equifax.
People tend to overspend over the holidays so it’s possible that the first months of the year will be your lowest credit score of the year. Pay them down and your score tends to improve.
If you are planning to buy a home, now is not the time to skip a payment. That will have the biggest negative impact on your score.
Pay bills on time. A mortgage company may consider a very late payment, bankruptcy, tax lien or other negative item as a reason to deny a loan. Q: How long does it take to improve your score?
Q: How long does it take to improve your score?
A: In some cases it can happen very quickly. If you pay off your credit cards, you’ll see it next month. If you have a derogatory item, that can stay on your report for seven years. You just need to set your expectations that you are not going to get the best interest rate. You can take some actions that will change it within a month’s time or it can be years.
Q: What should consumers know about efforts to change credit bureaus’ criteria?
A: Certainly there is an effort to try to look at more consumer data to score more consumers, including things like payday loans or utility bills or rental payments. This is a trend in the industry that we call “alternative data” to score more consumers. But when you look at the continuum of products out there, the mortgage is the most traditional and resistant to change. The things they will look at are the same as years ago.
Credit score, debt-to-income ratio and the appraisal or value of property — those three are still the standard pillars of the mortgage industry.
Q: What are some common mistakes people make in the mortgage application process?
A: It’s usually a gap between what they think they can afford versus what a lender would be willing to give them based on those three items. There can be a disconnect.
People say “Hey I have good credit” and assume they do, then they go to the lender and the lender pulls their file and there’s an issue or two on there. It’s that gap between expectation and reality for some folks.
Taking the long view over the last twenty years or so though — that gap has narrowed because consumers have so much more access to their credit information than they ever did and tens of millions of consumers are checking their credit more often than ever before.
Q: Some people put a freeze on their account following the Experian data breach. How long before seeking a mortgage should you lift that?
A: From a TransUnion perspective it can happen instantaneously. For mortgage lending purposes they are going to pull all three (reports). You have to remember where you froze it, how you froze it – online or whatever. You may want to take a day or two to unfreeze them before you apply but definitely make sure they are all unfrozen. It could potentially cause an issue if they can only get one or two out of the three.
The big three:
Source: ABC News and realtormag