Nov 29, 2022 - News

Cleaning up homebuyers' credit histories

Illustration of a hand cursor holding four credit cards.

Illustration: Shoshana Gordon/Axios

Poor credit makes home buying difficult.

  • But a new report from nonprofit Detroit Future City offers step-by-step advice to ensure mortgage lenders aren't unfairly using your credit history against you.

Why it matters: The lending industry's reliance on credit scoring inequitably hampers Black applicants, the report notes.

  • Systemic racism has excluded marginalized communities from developing credit through traditional methods like banking and property ownership.

By the numbers: While most conventional mortgages require a score of at least 620, more than half of Detroiters have a credit score of 600 or below, according to last year's Urban Institute study.

  • So despite the relative affordability of Detroit homes, 45% of local mortgage applications were incomplete, withdrawn or denied in 2020, according to Detroit Future City.

Steps to improving your credit score when home buying:

  • Obtain credit reports from the three major agencies (Equifax, Experian and TransUnion).
  • Dispute any errors. Common mistakes include incorrect personal information (such as unrecognized name changes), incorrect outstanding balances or past delinquent debt payments that should be removed from the report. Most negative information must be wiped after 7-10 years.
  • Participate in a homebuyer education program. Some even help with down payment assistance.

The bottom line: The report helps empower mortgage applicants to prevent lenders from using inaccurate credit information to deny loans or offer less-generous terms.

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