Imagine you just found out what your mortgage interest rate is from your lender, and it’s much higher than advertised rates. You know your credit is better than that, so why is it costing you more than it should to buy a home?
Before you lock in your rate, do some quick investigating.
You could have an error on your credit report that is affecting your credit scores, which in turn, affects your interest rate.
According to a study by the Federal Trade Commission (FTC), approximately one in four U.S. consumers have an error on at least one or more credit reports that could be serious enough to lead to higher rates on loan products. Worse, only one in five consumers were able to obtain a modification to their report.
The three credit reporting bureaus, Experian, Transunion and Equifax, collect data independently – which increases the margins for error. Your lender has no way to know if your report is correct, so it’s up to you to get copies of each of your credit reports and check for errors.
Once a year you are entitled to see a free copy of your credit report. You can go to www.annualcreditreport.com and order the reports separately. This is important because banks typically run one report to help set your interest rate. They also check credit reports again just before your loan closing, so you want to make sure that all three credit reports are correct.
If you find an error, you must report it in writing to the appropriate credit reporting agency. Include your name, social security number, date of birth, a copy of the report with the error circled; and copies, not originals, of documents such as social security cards, final payments, release of lien, court orders, or whatever you need to get the report changed.
Make sure your lender has copies of everything so you can prove the credit bureau is in error, not you.
The work you put in is well worth it. According to the FTC, consumers were largely successful at disputing erroneous data.
- 25% of consumers said the error was corrected by credit reporting agency
- 80% of consumers said some modification was made to their credit report
- Over 10% saw their credit scores changed after filing disputes
- Credit scores changed up to 25 points for 5% of consumers
- One in 250 consumers saw their scores rise 100 points or more
Once you’ve been able to get each report corrected, you’ll be able to get a better loan rate.
If you need help in evaluating your credit report, or need to pre-qualify for a mortgage, feel free in contacting me.