Believe it or not credit reports do contain errors. I don’t think any error on your credit report should be considered minor. Because errors in your report can significantly alter your credit score and end up costing you thousands of dollars in the form of higher interest rates, inability to refinance a loan etc. Additionally, there is a growing trend where employers, vendors (if you’re self employed), new business partners etc. are checking your credit before they decide to establish a relationship with you. So, it is ever more important that you diligently monitor your credit report and actively correct any errors you find!

If my long winded advice here doesn’t convince you then read the story of Mark S. Blythe. According to the Orlando Sentential, “Mark S. Blythe’s loans fell through and his business went on the skids — all because a computer glitch spewed bad information on his credit file, sending his credit scores into a free fall.”

The complete fallout of this error is mentioned later in the article:

Blythe’s credit file, in particular, was spammed with several loans he had never taken out with the former R-G Crown and a delinquency record that included 19 late payments. Bank officials said they acted immediately to restore accuracy to the customers’ credit files in early December. But Blythe said he continues to suffer financial fallout long after the bank claims the problem was solved.

“I’m fighting to survive,” he said. “First, my credit scores were trashed and my business came to a halt. Now, my line of credit has been cut off and that’s the last thing I have to operate with. All of this has happened because Fifth Third has not really fixed the errors they reported.”

So, be vigilant. Check your credit report once a year and review it for accuracy. Make sure EVERYTHING is correct. Contact the creditor if you find any errors. Ask them to correct it immediately. Keep track of the dates of your conversation in a log book. Follow up in 30 days.

Mistakes happen. But you and only you are responsible for making sure your credit is in right order. Getting upset with the mortgage loan officer when you urgently need to refinance your home would not be the way to go about solving this problem.

Related posts on Arizona Mortgage Guru for this topic:

• Top Five Credit Misconceptions
• Learn Your Rights, Fight Erroneous Credit Reporting
• How to Protect Your Credit Score When Your Loan is Sold
• Faulty Credit Reporting and the Growing Trade in Discharged Debt
• Bad Credit Can Cost You Your Next Job and Your Dream Promotion

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Tags: credit bureaus, credit scores, errors, reporting
Categories: Credit Bureaus, Credit Scores
6 Comments »

Your credit profile and ability to obtain future financing is the last thing on your mind if you’re planning on living abroad for a few years. Many Americans simply pack their bags and go off on their adventure without much thought to how this may impact their credit profile. However, once its time to move back home and you want to purchase a house your spotty credit profile can be a big obstacle. This is especially true if you end up living abroad for more than three years.

I have family in this exact same situation so I’ve given this matter some thought. A borrower whom I recently worked with has provided me with an exact idea of how to balance your desire to live abroad and still maintain a foothold in the US credit markets.

The first thing you should do is open a Post Office Box in your home town. Then change all your credit card mailing addresses to this PO Box. This is fairly inexpensive. I’ve obtained PO Box quotes for as low as $10/month. Then, arrange with the PO Box provider to forward all your mail to your address abroad on a regular basis.

There is a problem with this strategy if you’re a paper bill kind of person. However, to pull this off you need to begin making all your credit care payments online - before receiving your bill. This is because you could receive a bill (after forwarding) a few months later.

I suggest you keep four US based credit cards open during your time abroad. Use these cards once a quarter or every six months for a minor purchase (such as gasoline - although in Europe this may not be a minor purchase, considering gas prices). Then clear the bill in the following billing cycle. This maintains activity on your account and demonstrates that you’re making timely payments.

This level of diligence will pay off when it comes time to move back home to the United States. Any mortgage lender will be able to run your credit score with your PO Box address. You may need to provide an explanation of your residence history for the past two years, but that is pretty easy to do.

It’s exciting to have the opportunity to live in a different country for a few years. Many Americans chose to move back after a few years. And when that time comes its better to be prepared than not, believe me my in-laws wish they had done it!

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Tags: abroad, americans, credit report, credit scores
Categories: Credit Bureaus, Credit Scores
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From the mailbag: 

If I owe $175K on a VA mortgage on my primary residence and the bank agrees to “forgive” $25K because the best I can sell my house for is $150K will this negatively affect my cerdit rating?

Most likely this will adversely affect your credit. The extent will depend on how the bank reports the “cancellation”. They could report it as a foreclosure, short sale, deed in lieu of foreclosure or anything in between. If it is a foreclosure then of course that would be the worst case scenario in terms of credit score. Even though a short sale and deed in lieu of foreclosure may not affect your score as adversely as a foreclosure it really shouldn’t be too big of a difference. Even though I can’t say by how much your score will fall, don’t be surprised by what you see.
 
Even though the reporting may vary, in the future, when you go to apply for a mortgage, the lender will most likely view all three as a foreclosure. An instance where you were not able to meet the mortgage payment and hence had to be releived of the obligation through legal action. Regardless of what your credit score is at that point or whether it says foreclosure or not, the new lender will treat it as such.
 
This isn’t a dire situation though. Lenders will still give you a loan but only after a minimum of three years after foreclosure. In fact you can get a 100% loan today three years after foreclosure, as long as you have maintained good credit since that time. I can’t say whether these loan guidelines will not change in the future.

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Tags: debt forgiveness, foreclosure, short sales
Categories: Credit Bureaus, Credit Scores, Mortgages
2 Comments »

I see faulty credit reporting all the time. After pulling credit, I (or Aimee) will review the credit report with the borrower.  It is amazing how many times we see active accounts which have been discharged during a bankruptcy. 

Quite honestly, I’m not sure how much this affects the credit score, but it certainly will not help.  Oftentimes things go smoothly, as long as the borrower has paperwork to prove the debt was included as part of the bankruptcy. However,  with lending standards tightening, you can never be sure.

This Yahoo! Finance article “Prisoners of Debt“ has helped me understand how discharged debt can reappear in your credit report as an active account. It has to do with dubious practices on behalf of creditors and the resulting growing trade in discharged debt papers.

Traditionally, once a debt has been discharged the account is supposed to be worthless. However, creditors are still selling these worthless papers to buyers. It seems to appear that as this sale occurs because someone somewhere believes they will be able to collect on the discharged debt. The article I mentioned above has stories of people who were forced to pay on dishcarged debt when they were about to buy a home.

What is sad is that many people are being trapped into paying back debt they were legally absolved from. This seems to be a thriving cottage industry and some of the major players in this market are even listed on Nasdaq! Wow.

So, what does it mean for you? It means you need to be proactive. Keep tabs on your credit report by doing an annual credit review. If you find errors promptly contact the creditors and ask them to update the report. Alos, make sure you keep records of all your communication (take summary notes of telephone conversations, keep copies of any letters).

Further Reading:

1. How to Protect Your Credit Score When Your Loan is Sold
2. Top Five Credit Misconceptions
3. Learn Your Rights, Fight Erroneous Credit Reporting
4. Additional resources click here.

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Tags: bankruptcy, credit scores, dicharged debt
Categories: Credit Bureaus, Credit Scores, Mortgages
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Not only can bad credit cost you big bucks, it could even cost you that new job you want or the promotion you’ve been working so hard to get.  It’s hard to believe, but it’s true, more and more employers are pulling credit and screening out job applicants.

I vaguely remember a conversation from a few months. The person I was talking to mentioned how he needs to get his credit in order so he could get a better job. I had to give my thumped look. You don’t often get to see my thumped look.

I know business owners and self-employed people may need to furnish credit reports for business loans or big contracts. Also I was aware of top level sales executives at large companies needing to furnish a credit report annually so the company feels comfortable with their money and debt management.  But I was not aware of how this practice had trickled down to include regular folks in regular jobs. 

At first I didn’t think employers could do this and I wasn’t sure it would prove to be terribly informative. But I found they could. I also did some research on how extensive this thing was and found that employers are increasingly relying on credit reports to screen out job applicants. Here is what I found on the Bankrate.com website:

More and more employers are using credit reports to screen employees. The use of credit checks has increased 55 percent since 2000, according to a 2006 national survey conducted by Harris Interactive for Spherion Corp., a leading recruiting and hiring firm.

So what are employers using your credit reports for?

… ”many companies use credit reports primarily for authentication of the name and address history of the applicant, perhaps paired with a separate search of criminal history, rather than for the credit performance of the individuals being considered, especially if there are no significant credit issues.”

Again, is this legal? According to the FTC, it is permitted as long as the employer receives a written permission to pull credit. I guess it’s part of the background check.

There is more at stake with the credit report, manage it well.

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Tags: credit check, credit report, credit score
Categories: Credit Bureaus, Credit Scores, Personal Finance
6 Comments »

Very few lenders hold on to a mortgage loan. Most lenders sell the servicing rights to the mortgage to a third party loan servicing company within a relatively short period of time.  A lot can happen during this transfer and you as a borrower need to pay attention when you receive notification that your loan is being sold. 

I have talked to quite a few borrowers who complain that a late payment was reported to the credit bureau during the loan transfer, or they were erroneously charged late fees. The result of the late payment of course is your credit score suffers. Then it becomes a whole different story which could end up costing you big time when you apply for additional credit.  However, the law is on your side, according to the Federal Trade Commission (bold and other formatting mine):

There is a 60-day grace period after the transfer: during this time you cannot be charged a late fee if you mistakenly send your mortgage payment to the old servicer.

In addition, the fact that your new servicer may have received your payment late as a result cannot be reported to a credit bureau.

This is huge and that is why you need to pay attention when the loan is being transferred from one servicer to another. I suggest you do the following during the loan transfer process:

1. Keep all the paperwork you receive from the original servicer and the old servicer. 
2. Make sure you send an on-time payment to the exact address and if you mail a check don’t forget to account for weekends and federal holidays.
3. Keep a copy of the check you mailed.
4. If your payment is not processed within a reasonable period of time (a week), call the number provided.
5. When talking to the company keep notes and be sure to ask for names, contact numbers and reference codes.

The FTC website has a lot of information on how you can protect yourself as well as ensure the loan transfer process goes as smoothly as possible.  There are many things that can destroy your credit score but a screw up by the loan servicer shouldn’t be one of them.

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Tags: FTC, grace period, loan servicing
Categories: Credit Bureaus, Credit Scores, Mortgages
4 Comments »

When I check credit as part of the mortgage application process I always review the report with the client. I do this because I have found credit reports to be notoriously inaccurate.  I know Congress passed a bill a few years ago to address this issue. However, I’m still not convinced the system is accurate enough.

I pull anywhere between 150 and 250 credit reports a year and from my experience I have found that the error rate is astonishingly high. I am currently dealing with a friend whose credit report still shows a tax lien he paid off in 1999. Now, the frustrating part is that when he did a purchase transaction back in 2002 or something the tax lien was not on the report (which it shouldn’t). However, now that he’s thinking about buying again the tax lien has magically re-appeared. He has since contacted the IRS and obtained proof that he has paid off the tax lien. He will be faxing it over to the credit bureaus to get this corrected.

Despite efforts by Congress, consumers need to put pressure on the creditors who do the reporting and the credit bureaus who collect the information. A California couple took it a step further and sued a creditor. After repeatedly asking Wells Fargo to correct its erroneous reporting, this couple finally had enough:

As a result of the violations, Reed and Mary Ann Fisher, of Oceanside, Calif. suffered from a two-year uncorrected series of false and inaccurate credit reporting that resulted in damaged credit scores and credit denials, according to their suit and a jury decision, said their attorney, Robert F. Brennan, of La Crescenta, Calif.

And this week, this couple was awarded a $1 million settlement:

Wells Fargo Home Mortgage, as a mortgage servicer, has been ordered by a California Superior Court judge to pay more than $1 million for violations of the federal Fair Credit Reporting Act and the California Consumer Credit Reporting Agencies Act.

I am happy for this couple, because errors on your credit report can end up costing you big. A 30-40 point difference can be worth thousands of dollars in extra interest payments. Sometimes just a few points could end up hurting you. So, it is absolutely imperative that you monitor your credit report on an annual basis. You are entitled to a free credit report every twelve months.

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Tags: credit report, credit score, error on credit report
Categories: Credit Bureaus, Credit Scores
3 Comments »

Many people are confused when it comes to their credit scores. I know I’ve posted a pie chart demonstrating what constitutes the FICO score, but there is so much more to the credit score.  Take the quz below and find out how well you know the system. Answer the questions in the comments section. I will provide an explanation of each question as well as provide individual feedback next Monday.

Which one of the following affects your credit score?

a. Your income
b. Length of residence
c. Number of open credit cards
d. Length of employment
e. Your personality

You will be reported late on a credit card payment if you do not pay your bill within:

a. 5 days
b. 10 days
c. 15 days
d. 20 days
e. 30 days

Most lenders view credit counseling as a Chapter 13 bankruptcy.

a. True
b. False

As you shop for a mortgage you are bound to have multiple credit inquiries. Your score will not drop significantly as long as the credit inquires are within:

a. 10 days
b. 30 days
c. 45 days
d. 60 days
e. 90 days

Which one of the following is not part of the scoring model?

a. Payment history
b. Length of credit
c. Mix of credit
d. Credit capacity (how much you owe vs. how much is available to you)
e. Number of authorized users

E-mail me your answers if you’re dying to know how you did.

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Tags: credit quiz, credit score, FICO
Categories: Credit Bureaus, Credit Scores
1 Comment »

Below is a pie chart that answers a very common question I receive.

I know the FICO scoring model no longer allows the use of authorized user accounts to boost credit scores. However, there are lots of credit boosting companies out there that promise rapid score improvement at low or minimal cost. I don’t agree with a lot of what they preach so I won’t link to them here. I take a very different approach. For a short term fix I suggest you study the chart carefully and determine methods of improving your score or, at least be headed in the right direction. If you have questions, I can help you with them, but I certainly don’t think a credit boosting company has all the answers either!

The true and tried method to improving your credit score over the long term is very simple. The first is to be vigilant for any potential errors on your report. I recommend using a free service such as annualcreditreport.com to review your report and score annually. You are legally entitled to a free report every twelve months. The second method is to pay all bills on time. I know this can be difficult sometimes but you need to make this a priority otherwise regardless of your income, your score will suffer.

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Categories: Credit Bureaus, Credit Scores, FICO
11 Comments »

Many borrowers ask me why a silly three digit number, the credit score, is so important. Well, for one, it gives lenders a snapshot of financial behavior. The way the scores are calculated provide a really good instant photograph of the borrower’s potential to repay the loan in a timely manner. After all, lenders are in business to make money and they need a method to gauge the risk of exposure. The score is dynamic and can change dramatically based on a borrowers debt management.

With that in mind, below is a numerical analysis of how lenders view the risk of default for different credit score ranges. The risk is of course reflected in the interest rate offered to the borrower. 

As you can see, a credit score it not just any silly three digit number! Visit my website to learn how I can help you face your credit fears!

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Categories: Credit Bureaus, Credit Scores, Interest Rate
5 Comments »