Your Credit Report – Critical To Buying a Home and Obtaining a Mortgage

How important is ones credit rating?  Well, anyone who is applying for a mortgage or buying anything other than with cash, your credit rating will determine if you CAN obtain a mortgage or service, and WHAT the interest rate will be.  Depending on how much the borrower wants to make the purchase, and what debt can be supported with wage earnings, the credit rating means a great deal.

Organizations, known as credit repositories (bureaus), accumulate financial data on people who have made purchases on credit.  The data they collect is subjected to a proprietary analysis, which is converted into a three digit numerical "score".  Mortgage lenders, credit card companies, automobile financing companies, and just about every kind of creditor use the score, or rating to determine how credit worthy a borrower may be.  Until recently, the credit bureaus jealously guarded personal credit scores, the information in the credit report and the formula used to calculate the score.  The federal Fair Credit Reporting Act was specifically enacted to remove some of the secrecy.  While it is not possible to determine how the numerical score is determined, consumers are entitled to see the report, and to have inaccurate information that may be included in the report removed and/or corrected.  Sometimes that is easier said than done.

A widely reported case that resulted in the largest jury award thus far involving credit reporting proved just how hard correcting your credit history can be.  An Oregon real estate agent spent six years trying to get TransUnion to remove the credit history of another woman from her credit report.  The jury awarded the woman $300,000 for damage to her reputation and health, and another $5,000,000 for punitive damages, which was subsequently reduced to $1,000,000 by the judge in the matter.

An interesting question is why TransUnion was willing to go to such lengths to defend its position.  The credit reporting agencies take their financial role very seriously.  For them the integrity of the system is paramount.  If lending institutions and credit intensive businesses cannot depend on the unflinching dedication of the bureaus to report credit history as accurately as possible, then business reliance upon their data would dissipate very quickly. 

Unfortunately, there is a fundamental flaw in the way the credit agencies investigate claims that the data for an individual is erroneous.  Typically, they go back to the creditor for confirmation of the information.  That usually results in simply in a confirmation of the error.  That does the consumer no good at all.

For those who are purchasing real estate and applying for a mortgage, the lender will secure a tri-merged credit report. This is a report that includes the files all three repositories and their subsequent scores. For several reasons the scores can be quite different. Usually the variance is a result of the creditors not reporting to all three repositories. Generally the mortgage underwriter will use the middle score to determine credit worthiness.

Following are some tips on how to keep your credit history accurate:

• Know what is in your credit report.  You should obtain a copy of your credit report at least once a year.
• Learn what your "score" means in the credit world.  Generally, scores of 660 or better should qualify you for favorable interest rates and terms.
• Act immediately to inform the bureaus about any inaccurate or disputed information in your credit report.  This should be in writing, and by certified mail.  Take the steps to go to the source of the inaccurate information.  Write to the source directly by certified mail, and include any relevant information that you may have.
• Send the information to all three the credit bureaus. They are: Equifax (P.O. Box 740241, Atlanta, Ga. 30374, 800-685-1111); Experian (P.O. Box 2002, Allen, Tx. 75013, 888-397-3742) and TransUnion (P.O. Box 1000, Chester, Pa. 19022, 800-916-8800).

Consumers have certain rights under the Fair Credit Reporting Act.  Among them are:

• The law requires the bureaus to investigate written disputes within 30 days.
• The bureau is required to forward to the provider of the information all the data you provide.
• You have a right to amend your credit report with a statement relevant to a particular dispute.
• Non-compliance can be reported to the Federal Trade Commission at 877-382-4357, or in writing to the Consumer Response Center, CRC-240, Federal Trade commission, Washington, D.C. 20580.

For obvious reasons, your credit is very important to you, and no one will be as interested in your credit history being accurate as you.  Your financial well-being is highly dependent on your tenacity on the subject of your credit history.