Credit is king. Don’t even think about that terrific interest rate – let alone that dreamy craftsman home or upscale downtown condo – if your FICO is out of whack.
It seems that even veteran loan officers are being forced to ask you for the most minute of details before submitting your loan package to underwriting. “I only need two more pieces of information” can easily be a daily request with even the most complete files still drawing intense lender scrutiny.
A friend of mine who happens to be the most thorough loan representative I know says his biggest challenge of the past six months is explaining to existing customers that they “can’t even qualify for a mortgage under five percent.”
Why did things get so tight? A decade of cheap money and incredibly flexible loan programs offered by many lenders sparked overbuilding by developers, a flip-and-run mindset for speculators and unrealistic expectations for first-time home buyers blinded by the low payments of a short-term loan.
Last week, we heard from a Tacoma woman who was dinged $2,364.38 at closing under the secondary market’s new “risked-based” rules when her “middle” credit score dipped to 706 due to a late company credit card payment. Most lenders take the middle of three credit scores when considering mortgage financing.
The three credit reporting agencies Experian, (888) 397-3742, experian.com; Equifax, (800) 685-1111, equifax.com; and TransUnion, (312) 408-1077 transunion.com) evaluate a consumer’s credit and provide a score that reflects that status. The scores typically range from a high of 850 to a low of 300 and are generated by a complex formula crafted by the Fair Isaac Corp. (FICO).
What happens if your score is influenced by false claims? Some of us have common names and errors do occur.
The good news is that many states, including Washington, have specific timelines in which creditors and reporting agencies must act on credit challenges. For example, a credit agency has 30 business days to reinvestigate any contested blemish on your credit report and then contact you with the findings. If the credit bureau cannot verify the delinquency in question, the delinquency must be removed. The consumer must instigate the process – in writing.
The Washington law passed in an attempt to get creditors and reporting agencies to clean up their files and speed up processing. It also requires that the credit-reporting agency contact the creditor within five days to verify the debt.
Prior to the law, my wife and I had been down this road and spent months getting the challenge squared away. Several years ago, we had applied for a mortgage. We quickly received a credit report showing two delinquent payments, one to a department store, the other to a dry cleaners in Richland that I never used. The “30-day lates” had occurred nearly seven years before then – about the time we were moving into a new home. I wrote the store and the cleaners, explained what happened, and both companies removed the delinquent notices.
However, the letter from the department store did not get to the credit bureau. The same delinquent notice showed up on my report the next time I considered a refinance. I dug out the original letter, called the credit agency, and demanded an explanation. Needless to say, I also called the department-store chain and spoke to a credit agent. I read her my letter over the phone and explained someone had dropped the ball. What added fuel to my fire was the long-distance call (no toll-free number) and the time it took away from work.
Credit reports are powerful vehicles. Jobs, homes, reputations and future credit often depend on them. If an incorrect item appears on a credit report, it’s up to the consumer to see that it is corrected.
For example, I once had two mortgages with the same lender. Both payments were once credited to one account, and I got a delinquency notice on the other. It took two letters and numerous phone calls to get the 30-day delinquency removed from my credit report.
Merely telephoning and explaining your case to the agency is not enough. You should submit the explanation or proof in writing. People often don’t understand that a credit agency cannot remove something from a credit report without the authorization of the company filing the delinquency. Delinquencies include tax liens, judgments and repossessions.
Keep your credit as clean as possible. It will save you more than money.
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