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 5 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.
John Tuccillo, national housing analyst and former chief economist for the National Association of Realtors, said that lenders became so lax between 2003 and 2006 that “as long as you could breathe on a mirror, you could get a loan.”
Last week, we examined the case of the Seattle-area 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 because of 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 1994 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.
My wife and I had been down this road, prior to 1994, 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 to department stores. The “30-day lates” had occurred nearly seven years before then — about the time we were moving into a new home. I wrote the stores, explained what happened, and both companies removed the delinquent notices.
However, the letter from one 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 800 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. Merely telephoning and explaining your case to the agency is not enough. You should submit the explanation or proof in writing.
Keep your credit as clean as possible. It will save you more than money.
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