Credit Issues

The mortgage industry has been telling people for years that they ought to do routine check-ups of their reports on a regular basis, like annually. Happily, I am finding a higher percentage of people who come to my office having done so, but certainly not all of them. Of course, of those who don’t check, many have problems.

A recent case is that of a borrower for whom we had done a refinance a year ago. At that time, his credit scores were in the 750 range, excellent. He is now buying another property and when we ran his credit, the scores had dropped to the 660 range. Why the difference?

It seemed that a major retailer had issued a credit card to someone else, but used my borrower’s Social Security Number when reporting to the bureau. Would you care to guess is this other person made payments on time? Of course not! He was 90 days late on his account with a small balance of about $350.

Even though our borrower has 30 years of outstanding credit, this one itsy-bitsy ding was enough to savage his credit score. It’s as if you go to the Emergency Room with a boil, and they assume you have AIDS.

Now I think that any scoring system that works like this is in serious need of an overhaul, but it’s the one we have and we have to deal with it. The fact is that the scoring system is extraordinarily sensitive to recent derogatory credit, which means that it is especially important to be diligent.

In this case, I’m sure that the creditor will end up removing the ding and his score will go up. But in the meantime, he will not qualify for a .25 point pricing enhancement that would accrue to him if his score was over 700. On this loan, that’s $1,200. And this over a $350 unpaid bill!

In another case, an Unsatisfied Judgment for $6,000 showed up on the Public Records portion of my client’s report. The underwriting rules in use by virtually all lenders would require that this judgment be paid before closing. He doesn’t have an extra $6,000 to pay, and we are supposed to close in 2 weeks! Here’s what happened.

Our borrower was involved in a traffic accident in 1997. The other party sued him but before it actually got to Court, his insurance company agreed to pay the claim, did so, got a release of liability. They entered and recorded a Satisfaction of Judgment, which should have been the end of it. But while two of the three bureaus had removed it, it still showed up on Experian’s records as unsatisfied!

Do you want to imagine how difficult it is to fix something like this when all your household goods including financial records from seven years ago are in a moving van heading for Alaska ?

In this case we got lucky. It turns out that Clark County, Nevada has their court records on the Internet, and by going to the county’s website and finding the right page, we did an inquiry and determined that the case was, indeed, satisfied. We printed this page out, sent it to the lender, and they accepted as proof.

The point here is that errors do creep into the credit system. One report I heard about said that 39 percent of all reports have errors on them. Would you like to guess whether these errors are the kind that would raise your score? Of course not! In fact, in the scoring system, good events don’t count for anything! It is only the absence of bad things that results in a high credit score.

Even if you are not planning on applying for credit, you don’t want errors like this affecting your ability to get a loan or impacting the pricing to which you would otherwise be qualified. If you are planning on buying property or refinancing, go get your credit report NOW. You can easily do it at www.myfico.com or the websites of any of the three agencies, www.experian.com, www.transunion.com, and www.equifax.com.

Be careful out there.