Protecting your credit is important all the time, but especially when you’re in the middle of—or about to begin—the homebuying process, it’s even more crucial to protect your credit. That’s because there aren’t many other times in our lives where we need a loan of this size.
That means that in addition to getting your finances and paperwork in order, you’ve got to protect your credit like nobody’s business. Thankfully, there are a few easy, low-cost ways of doing this so your housing dreams don’t get derailed.
1. Pull Your Credit Report Annually
Protecting your credit starts with knowing where your credit stands. Go to annualcreditreport.com to request your free report. All three of the nationwide consumer credit reporting companies, including Equifax, Experian, and TransUnion, are required to give a free copy every 12 months.
Sit down and thoroughly review the reports and make sure all the information contained in them, including names, addresses, social security number, account names/numbers, and loans are correct. Each name and piece of information should be recognizable to you, and any numbers, such as loan amounts or terms, should be accurate.
If you find something that doesn’t look familiar or correct, contact the business associated with that entry or the bureau that provided the report.
2. Monitor Your Credit with Alerts
There are plenty of companies out there that are happy to monitor your credit, but you don’t really need to pay big bucks for this service. Experian offers free credit monitoring, as does Credit Karma.
Credit monitoring companies typically provide updated credit reports every 30 days, ensuring that you stay on top of any unfamiliar activity. They can also deliver real-time alerts if your account receives new inquiries, an account is opened, there are changes to your personal information, or other suspicious activity is recorded. These alerts are typically customizable, allowing you to dictate the levels of alerts or sensitivity. We recommend setting these alerts to the highest levels when you’re gearing up for the homebuying process.
Your bank and credit card providers will also watch for fraudulent activity, though this isn’t a substitute for credit monitoring. Multi-factor authentication can also help keep your accounts safe.
3. Utilize a Credit Freeze (When Necessary)
When it comes to protecting your credit, freezing it is one of the best things you can do if you suspect fraudulent activity. A credit freeze prevents others—including home lenders—from accessing your credit report, so don’t take this step lightly. However, if you’re dealing with a case of identity theft or fraud, it’s better to halt all activity until the issue has been sorted out.
Be sure to file a credit freeze with all three credit bureaus for it to be effective. If you only freeze your report with Experian and TransUnion, for example, someone could still steal your identity and/or try to open up an account by pulling a credit report from Equifax.
It doesn’t cost anything to freeze your credit, but you have to remember to unfreeze—or “thaw” it—before you can open a new account or have your credit pulled. You should also note that while a credit freeze can make it harder for someone to steal your identity, it can’t prevent them from stealing your identity. That’s where credit monitoring and alerts come in handy.
4. Learn to Recognize Phishing Emails and Calls
Have you looked into your car’s warranty yet? That’s just one of the scams going around nowadays. While many of us may be clued into the fact that lottery winners, princes from foreign lands, and cryptocurrency kings probably aren’t going to send us that $2 million that’s purportedly stuck overseas, there are many other scams that are harder to spot.
Some look like above-board investments with excellent returns. Others involve a scammer posing as a loved one who is in trouble and needs your help (and money) getting out. Sophisticated criminals will even pose as your bank, credit card company, or the IRS. Though their scripts vary, the ruse always ends with them asking for details linked to your identity or financial accounts—or simply demanding this info upfront.
Part of protecting your credit is knowing how to spot these crooks. Never provide personal information to an outside party that contacted you. Banks, credit card companies, and the IRS will never ask you to verify information in an email. If you receive a call requesting these specifics, feel free to take down the details and then call your institution back directly. If it’s legit, any representative will be able to assist you from there. It’s also important to remember that the IRS and other government agencies will NEVER call or email you. They send all of their communications via regular mail.
5. Don’t Apply for New Credit
A large part of the home loan application process involves determining your DTI, or debt-to-income ratio. This formula takes all of your monthly debts (credit cards, student loans, housing, etc.) and divides it by your gross monthly income (pre-tax wages earned from salary, commissions, bonuses, freelance work, etc.) to get a percentage. Though every situation is different, a DTI of 43% tends to be the limit for most loan programs, although there are a handful that will go higher (with higher interest rates as well).
If you apply for new credit—say, you’re buying a new car, buying furniture on a credit card, or taking out a student loan for your child—that debt now has to be factored into your DTI. Maybe you’ll be okay, maybe you won’t, but lenders don’t typically like surprises. And most borrowers don’t enjoy the surprise of obtaining pre-approval, having their bid accepted, and then watching the loan fall apart because of a new credit application. It’s best to wait until after your loan closes before seeking out additional credit or making large purchases.
Protecting your credit is one part art, one part science. Do what you can to prevent others from ruining your good name while doing all you can to ensure your credit score and report are as flawless as possible before applying for a home loan.
Ready to get started? APM is ready to walk you through the process. Find an APM Loan Advisor near you today to make sure you’re well on your way to buying a new home!