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Getting Credit in Order

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Posted On: 11/03/2010

QUESTION:

I've never bought a house, but with home values down and interest rates at low levels I've begun to consider the idea. As a place to start, how can I find out about my credit standing?

ANSWER:

First, you'll want to check your credit report. This can be done without cost or the need to purchase any additional "services" by going to AnnualCreditReport.com, a site set up under the Fair and Accurate Credit Transactions Act by the three major credit-report providers: Equifax, Experian and TransUnion. Once on this site you can get a free credit report from each of the credit reporting agencies every 12 months.

A good strategy is to go to the site once every four months and pull down a credit report from a different provider. This way you can check your credit regularly and without cost.

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Second, a credit report reflects obligations that are at least 30 days late. Once you get your report, print it out and then review it for errors (perhaps credit items for someone else) or items that are out of date - generally information at least sevens years old, 10 years for bankruptcies. If you find a problem, get in touch with the credit-reporting service.

Third, on the basis of the credit report lenders can obtain a credit score. This score, according to MyFico.com, reflects your payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent) and type of credit used (10 percent).

As an example, a typical FHA borrower has a credit score of 695 and gets a loan with 3.5 percent down. For credit scores below 580, FHA borrowers will need 10 percent down. For scores below 500, the FHA program is off limits.

Lenders do not use scores uniformly. For instance, one lender may make loans with a 620 score others may not. For specifics, speak with local lenders and real estate brokers.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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