For many of us, debt is a way of life. Installment payments and credit cards can be useful financial tools. But if not controlled, credit eventually can control you. To qualify for a mortgage loan, your credit history doesn't have to be spotless, but your history must clearly show your willingness to pay your debts.
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When you apply for a mortgage loan from a lender, they look at your credit record to see if you've been responsible about managing your debts. Your credit record can be obtained from a credit bureau. This is an agency that gathers statistics on individual payment records on loans, credit cards and other debts.
Federal law gives you the right to review your own credit record, and it's smart to do so before you apply for a loan. Most credit reporting agencies won't give you credit information over the telephone, but you may request your credit report in writing or in person. If you do it in person, be sure to take along identification. For a small fee (from $8 and up), the agency will give you a complete report that shows your current debts and payment history.
When you get your credit report, check it carefully for any past-due or written-off amounts. Remember that poor credit will prevent you from qualifying for a loan. Make sure the credit report's information about you is correct. Your lender may need a written explanation for any late payments.
Because credit reports usually list account numbers, loan terms and various codes, you may find your report a little confusing. Your lender can help you go over your report and explain any items that aren't clear.
If your credit report includes little or no information, demonstrate your payment history by including letters of reference from a lender or landlord. This information will become part of your application for a mortgage loan and typically, in these situations, a larger down payment would be required.
If you have a credit problem because of an unusual situation, write a letter of explanation. Your lender may overlook a credit problem if you can give a good reason for not making your payment. If you normally pay your bills on time but failed to pay one because of an unusual or temporary situation, write a letter that explains in detail why your payment was late. This letter will become part of your loan application.
If paying bills has become a constant struggle, seek professional help. There are organizations that can help you develop a solid plan for taking back control of your finances. It's important to let your creditors know if you're having problems making payments. In many cases, creditors will help you relieve your situation. Remember, creditors don't want to lose money, and they want to help you pay them back. For example, some bank credit card companies will reduce your monthly payment and give you more time to pay if they know you're having problems meeting your current payments.