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How to Clean Up Your Credit

If you are worried about your credit history, you can take charge of your situation by getting the facts and taking the actions necessary to improve your chances for a mortgage approval. Many consumers have faced difficulties that resulted in credit problems. The good news is that a consumer is no longer banned for life from obtaining a mortgage or other new credit. The primary purpose of a credit report is to establish that a borrower has a sufficient and satisfactory credit history for the loan requested.

The secondary purpose is to develop a complete summary of current debts that a consumer must pay each month. Credit reports also list any bankruptcies, foreclosures and legal judgments against a consumer.

When applying for a mortgage loan, there are specific guidelines established by mortgage institutions such as Federal National Mortgage Association (FNMA) for obtaining a conventional mortgage loan. These guidelines specify, "The borrower's credit history should demonstrate his or he past willingness and ability to meet credit obligations that will show the borrower's commitment to making payments on the new mortgage being considered."

Underwriters are more concerned about a borrower's overall pattern of making payments than they are about a few individual occurrences. "A borrower who has made payments on outstanding or previous credit obligations according to the contractual terms will have a credit history that consists of no late payments and no adverse or derogatory information (such as bankruptcies, judgments or collections). To make sure that a borrower who has an otherwise good payment history is not penalized for an occasional late payment, we do not require perfect or spotless credit records."

While usually accurate, credit reports often contain errors and mistakes. In the past, credit histories were a closely guarded secret and consumers could only guess if they were denied


credit by accident or due to incorrect information. Today, consumers can obtain exact copies of their credit histories from the major credit reporting bureaus.

Whenever consumers are denied credit, they can obtain a copy of their credit report to challenge and correct any errors or mistakes. For instance, if a borrower has a common surname or family members are Jr., Sr., III etc., he or she will be able to separate the accounts from family members or people not even related to the consumer.

A borrower should contact all three of the major credit bureaus directly to correct any errors appearing on reports from each of those credit bureaus. Each credit organization will send you a free copy if you have been denied credit. Otherwise a small charge may apply. You can contact each credit bureau as follows: TRW (800) 682-7654; Trans Union /Credit Bureau of CT (203) 931-2035; Equifax (800) 685-1111.

A borrower preparing to apply for a mortgage loan should take several steps to maximize chances of approval and prevent unnecessary delays. First, list all current debts, including monthly payments, total balance and type of loan (installment, revolving etc.) to determine what should appear on the credit report.

Second, get the facts. Contact all three credit bureaus listed above for a copy of each separate credit report. Each bureau will send a copy of the credit report, but the inquiry will not show up on the credit report as an inquiry because it was for the consumer. Each report will include a dispute form to challenge any incorrect information. Complete the dispute form for any items with which there is a disagreement and send it to each credit bureau.

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