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Check your credit before house hunt begins -- Page 2

Step 3: The fix
For starters, realize that a makeover can't alter an ugly yet accurate credit report. "Rather than locking yourself into a mortgage that is way too high, it's better to cool your jets and slow yourself down, make a plan and save, save, save," says Sweet. "Many times, a big down payment can offset some problems in your credit history."

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Having to wait can seem devastating, especially when a certain house or a low interest rate (particularly one that's been locked in) is part of the picture. Home buying is "a huge emotional and financial decision. It's not just like applying for a credit card and no big deal [if it doesn't work out]," Sweet reminds.

Just don't be tempted by credit-repair services claiming that any blemish -- even a big one such as a bankruptcy -- is erasable, Lowe cautions. While there are legitimate companies that provide valuable services to clean up your credit -- you usually can find them only through word of mouth -- Lowe cautions, "The majority of what you'll find are scam artist type things."

For consumers who find legitimate mistakes, each credit bureau -- Equifax, Experian and TransUnion -- posts its official dispute procedures online.

Disputing costs nothing and can be done online (considered the quickest route), or by phone or mail.

As you would expect, the process calls for any documentation that can help in the investigation. But keep it simple.

"The last thing you want to do is write to us and send us a bunch of documents. If we have to read through long letters of explanation about why you weren't late or what the story was, that just really slows down the process," Sweet says. "We just want you and the creditor to be in agreement on the status."

The Cotliers' electric company dispute required just two documents. "I always make fun of Keith for hoarding his canceled checks and old bills for years and years," Moira admits. "But it paid off. He broke open his vault of old paper, flipped through his files, and found the canceled check and following month's bill reflecting payment."

It all worked out in their favor when rate lock time arrived. The rate meant the couple could afford a bright and airy 1920s Colonial, complete with leaded glass windows and other period detail, on a charming tree-lined New Haven street.

Luckily for consumers, there's a 30-day limit on looking into credit disputes. If the creditor can't verify or document the disputed item within 30 days, the credit bureau will take it off the report, Lowe says. "If they decide later it should be on there, it will be put back on."

But she and other experts recommend being vigilant. Ensure that creditors are aware of the investigation and supporting documents, that all three credit bureaus correct the error, and that mortgage lenders who may have gotten the earlier report receive an update.

Another proactive option: rapid rescoring. A mortgage broker submits the dispute and it's taken care of in 72 hours. Lowe says this route is best for buyers at a critical moment with the house of their dreams. But rapid rescoring can be expensive, with typical costs about $30 per disputed item per credit bureau. Getting a rapid rescore from all three bureaus, for example, after having five items removed from your credit report could cost about $450. Because it's in the broker's best interest to get a client's loan approved, many will absorb the fee.

Step 4: The big chill
Once you know your score is where it should be and loan approval is imminent, remaining a good loan prospect is crucial. Don't fall into a situation like the young married couple who needed 100 percent financing to purchase a home. Donnelly, who was working with them, explains that lenders need a minimum credit score of 580 for this type of loan. "All through the process, my clients had a 585 score. By the time my clients found a home, their score had dropped to 579," he says. "I had to break the news that they would need at least five percent down to still buy this property."

The couple didn't have it and, needless to say, all parties involved were extremely disappointed.

Avoiding letdowns like that is why Donnelly recommends tracking your credit history early and keeping it as clean as possible, especially in the six months leading up to a home purchase.

That means not only paying on time but also thinking hard before shopping for new credit cards or opening loans during that time period, Sweet says. "Most likely a couple of inquiries won't make a difference, but if you have other risk indicators, it could be the straw that [means a higher mortgage rate]."

One exception: Most scoring models disregard mortgage inquiries made within the preceding 30 days, and consolidate mortgage inquiries made within any 14-day window into one inquiry within an entire two-year inquiry history.

So don't be afraid to shop around for the best lender. Just having gone through the process of finding out what you'll look like to them can make you more comfortable with the next steps. "It's not just peace of mind," Sweet says. "It's also a confidence builder in being able to negotiate and take care of your own interests."

Melissa Ezarik is a Connecticut-based freelance writer.

 
 
-- Posted: May 16, 2005
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