Gearing up for house-hunting

The spring house-hunting season is just ahead. John Danaher, president of consumer interactive at credit bureau TransUnion, talks to The Associated Press about why now is the perfect time for home-buyers to take control of their credit.

Why think about real estate now?

Typically the home-buying season starts to heat up in the springtime. So what we recommend is doing some work upfront to make that process go as smoothly as possible. That involves checking and knowing what your credit standing is and doing work to be preapproved for a loan so you’re ready when you find the house you want.

What are the first steps to take?

The first thing is to look at your credit report and see what your score is. And maybe people don’t know this, but for a real estate transaction a mortgage lender looks at all three credit reports — TransUnion, Experian and Equifax.

Typically in January I have my lowest credit score of the year because I have the highest utilization on my credit cards. I pay them down and my score tends to improve.

I think we recommend that the optimal utilization should be around 30 percent.

What about just paying your bills on time?

That is the single biggest determinant. If you are planning to buy a home, now is not the time to skip a payment. That will have the biggest negative impact on your score. It will do two things: it can drive the interest rate higher or it could, in certain cases, prevent you from getting a loan.

How long does it take to improve your score?

In some cases it can happen very quickly. The example of if you pay off your credit cards — you’ll see it next month. If you have a derogatory item, that can stay on your report for seven years.

What are some common mistakes people make in the mortgage application process?

It’s usually a gap between what they think they can afford versus what a lender would be willing to give them. There can be a disconnect.

People say “Hey I have good credit” and assume they do, then they go to the lender and the lender pulls their file and there’s an issue or two on there. It’s that gap between expectation and reality for some folks.

Some people put a freeze on their account following the Experian data breach. How long before seeking a mortgage should you lift that?

From a TransUnion perspective it can happen instantaneously. For mortgage lending purposes they are going to pull all three (reports). You have to remember where you froze it, how you froze it — online or whatever. You may want to take a day or two to unfreeze them before you apply but definitely make sure they are all unfrozen. It could potentially cause an issue if they can only get one or two out of the three.