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When you apply for a mortgage loan, your credit score is going to have a huge impact on the rate you have to pay for your loan.
Unfortunately, if your credit score is lower than it should be and you're offered a rate that's even slightly higher because of it, you'll likely end up paying tens of thousands of dollars more in interest. That happens because you pay your loan off over a long time and you typically borrow a large amount when you buy a home.
Sadly, far too many Americans are at risk of paying more for their mortgage than they need to because of an issue with their credit score that should be easily correctable. Here's the problem.
Millions of Americans are at risk of paying too much for a home loan
Around 13% of Americans are at risk of paying a higher interest rate than necessary when they secure a mortgage. The reason: Errors on their credit report.
A study from the Federal Trade Commission found that around 20% of consumers had mistakes on their credit report that they were able to have modified after identifying them and alerting the credit reporting agencies. And among those with errors, 13% of people saw their credit scores change after they disputed the mistaken information.
Unfortunately, if you don't check your credit report well before the time you apply for a mortgage loan, you may be among that 13% and not even realize it. When you apply for a loan, your lender typically won't specify that your rate is lower than it could be because of a particular issue on your credit history, so you may be unaware that you've been penalized for something on your report that didn't belong there.
This is a mistake that's easily avoidable
The good news is you don't have to accept a costlier mortgage because of an error on your credit record. You can get a free copy of your report from each of the three major credit reporting agencies by visiting AnnualCreditReport.com. It's a good idea to do this a few months before you actually get ready to apply for a mortgage loan because mistakes are not corrected immediately.
Once you've received your report, look carefully for any inaccuracies such as late payments you didn't make or accounts that aren't yours but are listed anyway. If you spot anything that doesn't belong there, dispute the inaccuracies by submitting a request to Equifax, Experian, and TransUnion. They'll investigate, and the erroneous information should be removed from your report within 30 days from the time you've brought it to their attention.
By making sure your report doesn't contain negative inaccurate information, you can present the best possible financial picture to lenders when you apply for a mortgage. You should shop around with at least three lenders to compare rates and hopefully secure an affordable home loan that keeps your monthly payments and total interest costs reasonable.
Mortgage rates are currently near record lows, and if you're buying a home, you want to take full advantage of this unprecedented opportunity to secure a low-cost home loan. Don't let mistakes on your credit ruin that for you and leave you paying thousands more over the next 30 years or so.
