When buying a home today, with the current stringent lending guidelines, a client’s credit score plays a pivotal role in whether or not they will be approved for a loan. One error on a client’s credit report can be the difference between being approved or denied a loan. That is why it is so important that each person obtain and review a copy of their report each year, giving them to ability to find and correct errors effecting their credit score.
The Consumer Finance Protection Bureau released a report revealing only one in five people actually obtain a copy of their credit report each year. The report also stated that consumers reached out to credit reporting companies about 8 million times to challenge information on their report. Overall, the actions led to 32 to 38 million disputed items.
The instances of being able to get a mortgage with less than stellar credit are behind us. Â A recent report by Ellie Mae, which represents 20 percent of all U.S. mortgage originations, found the average FICO score for a closed loan was 732, while the average denied loan had a score of 696.
Once approved, the effect your score has on your loan doesn’t stop. A loan savings calculator provided by myFICO, the consumer division of FICO, shows how credit scores can effect the interest rate one would receive on a mortgage. As of October 28th, 2013, a person with an average FICO score of 760-850 would receive a 3.765% rate on a 30-year fixed rate mortgage. However, if one had a score of 620-639, the rate would be 5.354%.
Just because you aren’t planning on purchasing any Knoxville real estate this year, doesn’t mean you shouldn’t be reviewing your credit report. Oftentimes it could take months to get an error off your report. With your credit score being one of the most important tools in getting a loan approval, it’s best to always keep it sharp. For current homeowners, it also is a major part of refinancing. Not a homeowner? More and more employers are looking at a prospective employees credit report before hiring. Yearly review is just good practice all around.