This is post #1 in a multi-part series written by Clark Realty’s management team for first-time home buyers. If you have questions about buying your first home, please contact us for additional resources.
No matter what is happening in the real estate market, there are some parts of the buying and selling process that remain constant.
For buyers, there are a few steps to take before starting your home search that may save you precious time and help you avoid unnecessary frustration and delays once you’ve found the home you want to buy.
First Things First: Check Your Credit Report
No doubt you’ve seen catchy TV ads telling you how to get a “free” credit report–and recommending you do so in order to avoid “living in the basement with your girl’s mom and dad!” But, there is only one website that is authorized by the Fair Credit Reporting Act to provide you with the free report to which you are entitled under the law. That site is annualcreditreport.com.
To obtain your credit report from annualcreditreport.com, you will need to provide your name, address, Social Security number and date of birth. You may have to provide your previous address if you have recently moved.
When you visit annualcreditreport.com, you can obtain your report from all three credit reporting agencies (Equifax, Experian, TransUnion) at the same time in order to compare them, or you can stagger your requests. You can request only one copy from each agency in a 12-month period, except for in a few special circumstances.
Once you obtain your credit report, look for any inaccuracies and incomplete information. If you do find errors in your report, visit the Federal Trade Commission’s How to Correct Credit Report Errors page for step-by-step instructions for getting those errors corrected.
Credit Report Versus Credit Score
When you apply for a loan to finance the purchase of a home, your lender will pull your credit score. Your credit score is a major factor in determining the interest rate you will pay for your loan.
If you want to know your credit score before you are ready to apply for a loan, you have a few options.
When you go to annualcreditreport.com, the credit reporting agencies will offer you the option of purchasing your credit score. You can also enroll in a credit monitoring program for a monthly fee, or you can use myfico.com, where you can obtain a score for free, but with a caveat. Here’s the small print you need to read:
“When you order your free FICO Score here, you will begin your 10-day trial membership in Score Watch®. If you don’t cancel your membership within the 10-day trial period, you will be billed $12.95 for each month that you continue your membership. You may cancel your trial membership anytime within the trial period without charge.”
Your credit score is based on five factors, each weighted as noted here:
- Payment History (35%): Major events, like bankruptcy, as well as late payments will impact this category negatively.
- Total Amounts Owed (30%): Having a high debt-to-credit ratio will impact negatively on your credit sore. This is why closing old accounts or account with a zero balance may not be in your best interest.
- Length of Credit History (15%)
- New Credit (10%): Opening several new credit accounts in a short period of time may reflect negatively on your credit score.
- Type of Credit (10%): What kind of accounts, how many of each and how many accounts you have will impact your score.
Credit Repair
For more information on repairing your credit and avoiding scams, please visit the Federal Trade Commission’s Credit Repair: How to Help Yourself page for more information
More Resources
For buyers ready to enter the market, understanding how lenders use your credit score is one of the first steps in the process of seeking a loan. If you have more questions about your credit report, credit score, or credit repair, the Credit and Loans section of the Federal Trade Commission’s website is a good resource for in-depth research. Or, you can speak with a lender you trust or your Realtor® for additional resources. Your home-buying process will proceed much more smoothly when, as a buyer, you take care of first things first.
