Perhaps you are already aware that contractors sometimes face extra challenges when applying for mortgages simply because they are self-employed. Good loan deals for contractors are out there, but sometimes these kinds of workers have to do a little digging to get what they want. That is just the way the system works.
If you are a contractor hoping to obtain a mortgage in the near future, one of the single most important things you can do to help your cause is to check your credit score before you begin applying. Your credit report is likely to be the single biggest influence on whether or not you are approved.
More About Credit Score
For the record, your credit score is derived through a mathematical formula applied to your credit history. Companies like Experian and Equifax assign numerical values to numerous parts of your credit history. Those values are then crunched by a computer that eventually returns a number. That number is your score.
A credit score is actually not a direct measure of your past credit history. Rather, it is a representation of how likely you are to pay back newly obtained credit in full, and on time. The higher your credit score, the easier it is for lenders to trust you. A low score represents a high risk to the lender.
Why You Should Check before Applying
Now that you know a little bit more about your credit score, you might be wondering why you should check before you apply for a mortgage. The answer is simple. Whether you apply through a bank or a mortgage brokerage for contractors, inaccurate information could harm your chances of getting approved.
The point here is to identify inaccuracies and get them corrected before lenders start looking at your data. You ideally do not want them to see any blemishes. But even if there are some genuine blemishes you cannot erase, checking at least offers the opportunity to correct inaccurate data and other mistakes.
What You Should Look At
You can check your credit score by asking for a free report from Equifax, Experian, or Callcredit. If you can get a report from all three, that is even better. With credit reports in hand, this is what you should be looking at:
- Addresses on all Accounts – First, verify that all of the addresses listed for your various accounts are correct. An incorrect address could link you to a place you never lived and any potentially bad circumstances that might be associated with that address.
- Joint Accounts – Your credit history might reveal past joint accounts that have since been closed. You should request that the credit agency unlink those accounts so that your former joint account holder’s credit does not harm yours.
- Inaccurate Defaults – Sometimes creditors will report a default based on inaccurate information that you have since corrected. Provided such defaults are not genuine and you have the documentation to prove it, you can have them removed from your credit history.
- Dormant Accounts – Check your credit history for dormant accounts. A dormant account is one that is still open but which you no longer use. These accounts should be closed right away. Every open account represents available credit whether you use it or not, and available credit affects the amount of money you can borrow.
In terms of those dormant accounts, keep in mind that lenders look at your debt load as compared to the amount of available credit at your disposal. The general rule states that an unusually high level of available credit has a negative impact on debt load because it represents an invitation to borrow. Lenders do not like to see dormant accounts for that very reason.
Do Not Let Inaccuracies Get in the Way
As a contractor, you might already face challenges obtaining a mortgage. You do not need an inaccurate credit report getting in the way of buying a home. So before you ever apply with the bank or mortgage broker, check your credit score. If there are things on your record that need to be changed, get them taken care of so that they do not harm your mortgage applications.