Real Estate News
Schedule a free
consultation with our home loan experts.
| NATION'S
HOUSING |
Correct Your Credit
Errors and You'll Reduce Your Interest Rate
By KENNETH R.
HARNEY, SPECIAL TO THE TIMES
WASHINGTON — Are your credit scores high enough to qualify you
for the lowest interest rate on a new home mortgage? If not,
could factual errors hidden in your electronic credit files be
depressing your scores artificially?
Mortgage and credit industry experts say the odds of errors
are greater than you might suspect. Whereas 10 years ago loan
officers routinely reviewed individual credit reports with
applicants, today's high-speed, automated underwriting
environment emphasizes credit scores, with little opportunity
for review of the files that produced the scores.
Match or exceed the lender's preset credit score minimum and
you get the best rates and terms. Come in below that mark, and
you pay more--possibly a lot more. But new developments in the
mortgage credit arena are giving consumers opportunities to
check out--and correct--their credit files quickly enough to
get better rate quotes from lenders. Credit-reporting firms
have begun signing up mortgage lenders and brokers for online
data-correction services that can push up scores in less than
a week.
One of the most ambitious of these, known as Scorefacts.com,
is run by the California-based firm, Standfacts Credit
Services Inc. Lenders and brokers participating in the
Scorefacts program instruct Standfacts to flag all loan
applicants' credit reports with scores below a designated
threshold. Generally, the cutoff point separates applicants
who qualify for the lender's best rates from those who don't.
When home-loan applicants' scores are below the designated
mark, they immediately get an e-mail saying that their credit
files contain data they may wish to review. Applicants can
then go to a secure, Scorefacts Web site, punch in an access
code, and examine the full electronic credit files that were
pulled from the three national credit bureaus--Equifax,
Experian and TransUnion. If any of the negative information
depressing their scores is wrong, applicants can quickly begin
the process of correcting the files.
Standfacts promises lenders that most errors can be corrected
within 72 hours of receipt of documentation from creditors
confirming the mistaken information. Then the loan applicants
can be "rescored"--usually to their benefit on rates and fees.
Gary Kassan, president of Standfacts, said he has seen scores
jump more than 100 points when the incorrect information is
removed, and the mortgage applicant is rescored. More
typically, he said, scores increase by smaller increments--20
to 30 points--"but that's frequently all that's needed" to
move an applicant into a lower interest-rate category.
Most lenders and brokers nationwide use FICO credit-risk
scores, named after their developer, Fair, Isaac & Co. Inc.
Proprietary FICO software is installed at each of the three
national credit bureaus. Scores are generated when electronic
credit files are ordered and run through the software. High
scores--720 and above--indicate a relatively low risk of
borrower default. Scores in the 600s and below are considered
higher risk.
But some of the negative information in a credit file may be
mistaken. For instance, an incorrect report of a nonpayment on
a debt or a misfiling by a department store regarding a charge
account.
One of the most common mistakes, Kassan said, is confusion
over names within families. Father and son may have similar
names, for instance, but father always pays his bills on time
while junior is a deadbeat. The result: Some credit reports
erroneously mix junior's bad behavior with dad's pristine
credit history. When dad goes to apply for a loan, his FICO
scores are too low to qualify him for the rates and terms he
deserves.
How costly are those artificially depressed scores on a home
mortgage? Very. According to Fair, Isaac's latest nationwide
rate survey covering thousands of lenders (posted at
www.myfico.com), a consumer applying for a mortgage with a
FICO score between 500 and 559 would qualify for no better
than a 10.2% fixed-rate 30-year loan.
The same person with a score between 620 and 674 would be
quoted 8.43%. With a score between 700 and 719, the rate would
drop to 6.7%, and above 720 the borrower would get a 6.6%
loan.
Could the presence of unseen bad data in your files cost you 2
or more percentage points--and potentially tens of thousands
of dollars of higher monthly payments--on your home loan?
Absolutely.
If your broker or lender uses a rescoring service such as
Kassan's, you may get a shot at correcting your files in time
to get the rate you deserve. Ask about it at application.
Otherwise, you can do the same thing in advance: Before
applying for a loan, order all three of your credit reports,
contact any creditors who have entered erroneous information
about you, and get it all corrected.
*Credit Repair with our Automated Mortgage Credit Coaching!
Kenneth R. Harney's e-mail address is kenharney@aol.com.
Distributed by the Washington Post Writers Group. |
June 16, 2002 |
BlueMortgage.com provides a wealth of
information about the various phases of a real estate loan
transaction. We also provide helpful advice to assist you through the
process. Take a look at our Mortgage Information
Gateway menu, and click on any option that interests you.
Click here to
get Pre-Qualified Online Free.
downloads
Realtor ® Center
Refinance Info | Home equity loans | Our
company info | Interest Rates | Less
than perfect credit
|
