Credit Reports   CONTENTS: Info on Credit Reports Consequences of erroneous credit reports Differing types of credit pulls

Have you seen your credit report lately? Were you aware that very few reports are accurate? An erroneous credit report can have a dramatic impact upon the ease with which you secure a mortgage and can directly affect the interest rate you receive.

 

When it comes to credit, unfortunately it is not how you pay your bills, but how your creditors REPORT that you pay your bills!

 

THIS MEANS YOU NEED TO CHECK AND CORRECT YOUR CREDIT REPORT BEFORE YOU EVER BEGIN LOOKING FOR A HOME! OUR LENDER PARTNERS WILL HELP YOU.

 

It may not seem fair, but in this litigious society and with the constant scrutiny over discrimination there has to be a common guideline, or equalizer, that cuts across all levels & applies to everyone which regulators can point a finger to and say "This person was turned down because . . . . .

 

As I've mentioned before, the better you know the rules to a game the better you can play that game and the more likely you are to win, so let's see what some of the mortgage rules are from an Underwriter's point of view and then examine the credit reporting system to see how you can enhance your chances of winning.

 

If you stop and think about it you'll realize that looking at past performance to try to determine future performance makes good sense and is done all the time. You've become accustomed to it in sports. The favored football team of the week, a horse's handicap at the race track, etc. are all determined by looking at the statistics of their past performances.

 

A credit report is basically your past payment performance statistics! Late payments are more of an issue and a money loser to mortgage lenders than foreclosures, because there are so many more of them! So iit is understandable that Underwriters would be especially sensitive about the potential for late payments.

 

The reason looking at credit reports is a good predictor of how you will handle your debts is that, unless there is a significant change in circumstances, people don't usually change their reaction patterns overnight (lotto winners excluded). If someone isn't concerned about paying their credit card payments before the due date or if they regularly pay their rent/mortgage 15-30 days late what do you think the odds are they will pay their new mortgage any differently?

top

Now here's the problem, if the information contained in the credit report is wrong or some of your accounts are not included in the report, the underwriter can only come to the wrong conclusion. Fortunately, credit is only one of many approval criteria, but if you are weak in one area you'd better be strong in all others!

 

Unfortunately, an acceptable credit score is many times your ticket for admission. If you don't have at least an XXX credit score many times an underwriter is not even allowed to look at the rest of your file. So, many times credit becomes THE major issue. (see also Credit Scoring)

top

There are 3 major credit repositories - Equifax, Trans Union and Experian plus a million credit reporting companies that access this data. There are many ways to access & sort the data and therefore many different credit reports could be generated.

 

Department stores & preliminary mortgage reports generally access a type of report that is limited to a certain response time from the credit bureau (for speed) so at peak times less information will be included which makes the report less accurate.

 

A mortgage credit report is slightly different than any other credit report. It is even more inclusive and accurate than the reports you pull yourself. This means the credit scores will be different than the report the car dealer, credit car company or you pull.

 

There are also many different formats used to print this data. The simplest is a report that includes the raw data from only one repository. Alternatively, the data from all three could be merged onto one report which is easier to read. To go even further this report could be "de-duped" which means all of the duplicates are removed from that report (not the credit bureau) and obvious erroneous information could be removed (once again, from the report, not the credit bureau). This is the format most mortgage companies use.

 

An underwriter will look at at least 2of these repositories. There is no standard that tells the underwriters which repositories they must use. They use whichever they feel gives them the most accurate determination of the borrower's history and abilities so you must be prepared by looking at and correcting all three.

 

Theoretically all credit repositories could/should all have the same data, but that is seldom the case. Remember there is no standard for data reporting and many creditors only report to one or two of the bureaus. The Fair Credit Reporting Act determines they standards they must follow.

 

In a nutshell, the Fair Credit Reporting Act says that Creditors are not required to report your credit history to a credit bureaus. If they choose to do so, they are only required to make sure they do not report you worse than your actual pay history. You could be 30 days late every month and they could choose to report you as on time. That is legal, but if they mark you as 30 days late and you weren't that's illegal.

 

Creditors must correct any errors in a "reasonable period of time" AFTER it is brought to their attention. But enforcement is kinda like speeding, if you aren't caught then you weren't really speeding, right? Many creditors, especially collection agencies, use this to their advantage. They know the rules to the game so they can play it better than most people.

 

If you can prove you have been damaged by an erroneous derrogatory credit report they are responsible for that damage and compensation will be forthcoming.

 

Keeping the lax Fair Credit Reporting Act enforcement in mind many times the same creditor will report your credit 2 or 3 different ways.

There is one major department store that consistently reports you with good credit on one bureau, but reports you as having 1 30 day late on another bureau and 1 60 day late on the third bureau.

 

A large, Dallas area credit union will report your loans several different ways under many different account numbers. They will include the collateral in the account number (CHEV12345) but also report the account as loan number 123456789, or 123456CAR, etc. etc. This one account can be on the credit bureau 4 or 5 different ways which means you have 4-5 times the debt and possibly 4-5 times as much derrogatory credit.

 

One major car financier has a bug in their computer system that will report you late if your payment is received anytime during the following month. If your payment is due on the 25-31st you are in deep trouble. Unless you mail your check so that it is received by the due date, all or most of your payments, will be received in the following month and counted as 30 days late. We know of one man who had 36 30 day lates out of a possible 36 because his payment was due on the last day of the month.

 

As you can see errors can pop up or compound themselves very easily and without your knowledge. You think you have excellent credit because you pay everything on time, but, too late you find out the credit bureaus give people another impression entirely.

 

This is a point worth repeating, most credit reports are inaccurate! BEGIN WORK EARLY!!

 

This is one more reason your lender of choice should be one of our Lending Partners. They are all National Association of Mortgage Broker members. NAMB members have access to a Rapid Correction procedure that can get your credit reports corrected in as little as 72 hours AFTER you have furnished the supporting documentation.