Why the FCRA and Your Credit is the Key to a Good Mortgage Rate

Every time you apply for credit, whether it's opening a new phone line or applying for a home mortgage, creditors look at your credit report. They check your credit score, your history of making payments and your current debt load. They do this not only to assess whether they want to lend money to you, but also to gauge how much interest or loan insurance they should charge.

When you apply for a home mortgage, you'll go through an extensive application process. You'll be required to submit your proof of income, past bank statements, and employment history. Your financial institution will review these and your credit thoroughly. But what exactly does that mean?

In this article, we'll teach you about your credit rating, credit reports, the Fair Credit Reporting Act (FCRA) and how you can use all these to secure your next home.

Credit Rating or Score

Your credit rating is actually a numerical score called a FICO score. By placing a value percentage on your repayment history, debt-to-available-credit ratio and type of debt, the credit assessment agencies determine a score that's used to rate you as a lendee. Many lending institutions use this score to draw a conclusion on your loan suitability and interest rate.

Credit Information

Your credit numbers are a lot like a report card. It includes a list of your debts from the last 7 years along with a record of the debt amount, how well you've made payments, whether you had any delinquencies (non-payments) and your debt-to-available-credit ratio. The information on your report is what is used to come up with your credit score.

FCRA

The Fair Credit Reporting Act (FCRA) is a federal law that gives you, the consumer, power over your consumer credit information, and it's extremely important if you're having trouble obtaining a home mortgage because of poor credit.

Essentially, the FCRA says that you have the right to see your credit report at any time and grants you one free copy per year. It also allows you to contest any misinformation found on your the report.

So, if you've been turned down for a home mortgage because of poor credit or you're thinking about applying for a mortgage but are worried about your credit, it's very important to request a copy of your personal report. From there, review it carefully and always contest any mistakes. Remember, a healthy credit score leads to a healthy financial future.

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