5 Credit Report Errors That Jeopardize Home Loans

Tristan Powys (Credit Manager) @ Lucid Living

In a recent study, 19% of American consumers who reported finding an error in their credit reports opted not to dispute the error, even when they were offered $5 to file the dispute!  Why not?  

Well, some said they thought the error was too minor to impact their credit score, while others said the dispute process seemed too difficult to tackle.

The fact is, when you’re trying to qualify for a home loan, some of the items on your credit report that can pose a threat to your home loan plans might surprise you. Here are 5 surprising credit report entries you absolutely must fix, especially when you are in the process of applying for a home loan.

1. Account balances you recently paid down or off.

If you’ve just finished paying an account down or off, you might not dispute the elevated balance that remains on your credit report because it’s not actually an error, per se.  But the whole point of paying the balance down was to bring down your credit utilization ratio, which is a heavily weighted factor in your overall credit score.

Correcting the actual balances of your outstanding accounts downward to account for your recent pay-down efforts poses such a large potential improvement impact for your credit score that it is worth subscribing to Lucid Living to initiate a Rapid Rectification, which can update your credit report to reflect your slimmed-down balances in about 14 days, compared with the 30 to 60 days you’d expect to wait to see results from a traditional dispute or update with the credit bureau.

2. Incorrect former addresses.

Of the 19% of consumers who spotted an error on their credit report in the study, nearly 40% of those errors were in what the credit bureaus call “header data,” things like the consumer’s previous street address. Many elected not to dispute these sorts of line items because the error doesn’t seem like it would impact their credit score.  While an inaccurate address might not have much to do with your credit score, it can still wave a red flag, signaling issues that can foul-up your home loan application.

A misspelling in an otherwise correct street name should not cause you grave concern.  But if the previous addresses listed are in the wrong city or province, or otherwise come out of nowhere, they might signal that someone has used your name and/or identity to obtain credit at a different address.  Credit card fraud and identity theft are difficult to unravel when you’re not seeking credit; they are much more complicated to resolve when the credit stakes are high and the lenders are as picky as they are in the course of assessing your application for home loan finance.

Also, current and previous addresses that conflict with where you’ve told the lender you live(d) can raise suspicion about fraud. That can provoke a lender to make you jump through greater hoops to prove your true address or even stop you from qualifying for the home loan altogether.

3. Bills that were never yours in the first place.

As with completely bizarre former addresses, accounts listed on your credit report that you never opened in the first place can be a red flag that tips you to the fact that someone else might have stolen your identity and opened a credit card or account in your name.  If you find one of these items on your credit report, but it’s currently closed or has a zero balance, you might be tempted to let it slide, thinking it can’t move the needle on your credit score.  In reality, though, if someone is using your identity to obtain credit and you fail to dispute that the accounts belong to you, they might continue to use it, which can cause you real problems.  Of course, if the accounts weren’t paid on time or have been placed in collection, disputing the accounts’ presence on your credit report is a must.

If they were paid on time every time, though, the analysis might be different.  Unfortunately, instituting a fraud alert on your credit reports at the same time as you’re applying for a home loan can complicate your own loan qualification process significantly.  If you find yourself in this situation, carefully scrutinize the rest of your credit report and the credit reports you receive from the other credit bureaus to detect whether other fraudulent accounts exist, then consult with a Lucid Living credit manager on exactly when and how you should go about disputing the accounts which weren’t actually yours.

4. Limits listed as lower than they really are.

As with closed accounts that were never yours in the first place, accounts that are listed on your credit report as having limits that are lower than they really are might seem like a battle not worth fighting.  But the fact is that only two inputs go into the credit utilization ratio that comprises about 30 percent of your credit score: how much credit you have available, and how much credit you have used.  So, if you have account balances that show up on your credit reports as lower than they actually are (i.e. that you have less credit available to use), that inaccuracy can skew your credit score and jeopardize up your home loan qualifying efforts.

5. Derogatory items that should have aged off.

Very few of us are perfect, and you might have worked hard to pay your bills on time in an effort to overcome a credit ding from back in the days.  Although the impact a derogatory item has on your credit score wanes over time, it’s still your right (and your responsibility) to make sure negative items/blacklistings disappear from your credit report when they are supposed to – that’s 2 years for a late payment and 5 years for a judgment.  If you are still seeing credit dings on your credit report after more than the relevant time frame has elapsed, dispute them and claim the rehabbed credit (and score) you’ve since earned.

Credit report errors can cause significant changes in your credit score, yet, many borrowers aren’t disputing these sorts of errors – which could make a difference in their home-buying prospect.

If you’re close to a credit tier cutoff, like 620-640 or 740-760, depending on your home loan type, even a few points’ difference can be the difference in qualifying for a home loan or not, or paying a higher home loan interest rate for the life of your loan.  For these reasons, it behooves every potential borrower to be proactive in spotting and correcting these 5 must-dispute errors.