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Credit Score Needed To Buy A House

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It is no secret that having a credit score that is ranked low will create higher interest rates from lenders because you are considered a credit risk. Most people have only a vague understanding of this and are surprised by the often devastating effects this can cause.

For instance, a $200,000 home that is on a 30 year fixed mortgage at 8% interest instead of 6% interest will have a dramatic effect. The 2% higher interest rate due to low credit scores will cost you a total of $96,934.11 over the term of the loan! Consider how many years of work that equates to in paying just that 2% difference.

There are other places in life that a low credit score will actually increase your cost of living on a yearly basis. Not only will you be paying more for your home loan, car loan and credit cards a low credit score often cause you to pay extra in the following areas:

1) AUTO INSURANCE. The vast majority of the 100 largest personal auto insurers use a person's credit information to underwrite a new client. This snippet is based on a 2001 study that was conducted by Conning & Co; an insurance research and asset management company.

2) HOMEONWNERS INSURANCE. Many insurance companies relate a low credit score to a greater risk of property insurance claims. This often results in a low credit score earning a higher homeowners insurance rate.

3) LIFE and HEALTH INSURANCE. Increased costs are passed onto the insurance company when customers are unable to pay their insurance premiums. The means the insurance company takes a loss when they are left with unpaid medical bills. This to relates to low credit scores as they are the consumers who are more likely to lapse in their premiums; hence the cost of insurance for credit risks are higher.

All of the above mentioned places are often expected areas effected by a low credit score; however, a more shocking and unexpected place effected by a low credit score is in employment. Currently it is estimated that over 40% of employers perform credit checks on their applicants before hiring them. This is based on a 1998 survey conducted by the Society for Human Resource Management.

Certainly, employers often report that they do credit checks simply to verify the information on the application is correct, such as addresses and previous employment. It can more than likely be safely assumed that they are also taking the liberty to see how you have conducted your finances. This is unfortunate since as many as 79% of all credit reports contain errors, according to the Public Research Interest Group, also known as PIRG. Of these 79% of errors, 25% are thought to be serious enough to cause the denial of credit to be extended.

According to Ed Mierzwinski, the director of PIRG's consumer program; "it's outrageous that the credit bureaus are claiming their scores are accurate enough to take people's lives and screw with them like this". This casts a shadow over the consumer credit report as the consumer begins to realize the full impact of a bad credit report.

Credit Score Needed To Buy A House

Credit repair advertisements claim to guarantee a quick fix on your credit report. They promise for a fee (not always disclosed at first) to clean up your credit history so that you can qualify for a new home, car, insurance, a job, or premium credit cards. Before you sign up with one of these companies, you need to know some facts.

The real facts on fixing your credit score

The real truth is that no one can legally remove information on a credit report. The Fair Credit Reporting Act (FCRA) allows you, the consumer, to request an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge to you. There are other steps that you can do yourself, without paying a credit repair company, such as:

* You are allowed a free credit report if a company denies you credit, insurance, or employment (if this is a part of your employment application) provided you request a report within 60 days of this denial. The notice will give you the name of the consumer reporting agency that provided this report. You can dispute information that this denial is based upon. Under FCRA, both the consumer reporting agency and the information provider are responsible for correcting inaccurate or any incomplete information in that report.

* Put in writing what information you believe to be inaccurate. Include copies of any documentation that supports your claim. Be sure to send this letter to the credit reporting agency, and send it certified mail so that you can prove it was mailed and signed for at their end.

* You will get a response within 30 days. During their investigation, they must forward all your documents to the merchant or vendor that provided the negative credit information and report back to the credit agency. If they find that the information is inaccurate, they must notify all three reporting agencies of their findings: Equifax, Experian and TransUnion.

* When the investigation is concluded, you must receive a copy of the results in writing and a copy of the dispute if it is changed. It the disputed item is changed, the credit reporting agency cannot put the disputed information back into your file unless it is verified as accurate by the merchant or vendor.

* The credit reporting agency must send notices of a correction to anyone who received your credit report in the past six months. You can also have a corrected copy sent to employers that did not hire you based on your credit report.

Removing a bad credit rating

When you have a bad credit rating based on negative information that is accurate, you can only wait for it to be removed over time. By law, a credit reporting agency can only report negative information for seven years and bankruptcy for ten years. For unpaid judgments, the reporting period goes back seven years or until the statute of limitations runs out. Criminal convictions and applications for over $150,000 of life insurance have no time limits. By starting to pay your bills on time and contacting the creditors that you cannot pay, you can start to change your credit profile to the positive side, but that will take time also.

If you do decide to use a credit repair company

Start by getting a free copy of your credit report. Then assemble all your credit card bills and write them down. This will give both you and your credit repair company a starting point. By law, credit repair companies must give you a brochure, “Consumer Credit File Rights Under State and Federal Law” when you sign a contract for their services. This contract must clearly specify your rights, obligations and fees. The contract must also clearly detail the descriptions of the services they will perform for you, how long it will take to see the results, and any guarantees they offer you. Members of the National Foundation for Credit Counseling are non-profit organizations providing free and low cost services to consumers with a wide range of plans, covering most types of credit used, including home mortgages.

Credit repair companies can help if you're drowning in debt. Before you sign a contract, check out these low cost and free options you can do yourself.

Copyright 2005 Ed Vegliante.

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About Author

Both Jennifer Stromsteen & Ed Vegliante are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Jennifer Stromsteen has sinced written about articles on various topics from Real Estate, Brain and Anger Control. J Stromsteen has many years expertise in the finance, real estate, and insurance industry. She contributes to various websites such as where. Jennifer Stromsteen's top article generates over 74000 views. to your Favourites.

Ed Vegliante has sinced written about articles on various topics from Credit Cards, Debt Consolidation and Credit Cards. . Ed Vegliante's top article generates over 110000 views. to your Favourites.

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