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National Mortgage Professional
May 22, 2007

New credit report fees Hedy BermanExperian and Equifax, sub-prime, National Association of Mortgage Brokers, Fair Credit Reporting Act New fees will limit comparison shopping for marginal borrowers New consumer credit report fees are now in effect. Although only two of the three largest credit reporting agencies (Experian and Equifax) have announced increases, industry insiders believe that a href="http://www.transunion.com">TransUnion is sure to follow. These increases in the cost of obtaining credit reports will lead to significant reductions in the number of sub-prime mortgage applications. Previously, each time you submitted a credit report to multiple lenders, you paid only once. Now, Experian and Equifax will charge you for each submission of your consumer's credit report. You will have to either absorb the expense or charge the additional cost to your client. According to the National Association of Mortgage Brokers, " ... this significant increase in costs will ultimately limit a consumer's ability to comparison shop for loans and will likely have a profound effect on non-prime borrower's access to credit." [See "NAMB industry alert: Changes at Experian and Equifax expected to increase costs and decrease access to credit for marginal borrowers" The Mortgage Press, January 2007] Now is the best time to take those marginal borrowers and pump up their FICO scores. This will not only lower your cost of doing business, but will allow more applicants to qualify for better rates. Consider using the services of a professional and reputable credit restoration company that can help improve their current credit scores. The credit reporting system, according to the U.S. Public Interest Research Group, " ... contains serious errors in one out of every four credit reports." A credit report that has erroneous or incomplete information will have a negative effect on your client's creditworthiness. There are many reasons for those errors. Some are due to confusion over similar names and others are simple clerical mistakes made by the credit bureaus. For example, the more common your name, the greater the chance your file has someone else's information and that their file has your information in it. The three major credit bureaus are only interested in keeping and managing their files at the lowest possible cost. They do not deliberately make mistakes, but whatever the cause, those errors will adversely affect your credit because your FICO score is based entirely on information contained in that file. A credit restoration company will use the Fair Credit Reporting Act to challenge negative information that appears in a client's credit report. For example, inquiries from lenders are supposed to be removed after two years; late payments, charge-offs, foreclosures, collections and Chapter 13 bankruptcy are supposed to be removed after seven years; and Chapter 7 bankruptcy, after 10 years. The credit bureaus have 30 days to verify any information that is challenged. If they are unable to do so within the prescribed time period, those items must be removed. Additional parts of a FICO credit score consist of payment history and amounts owed. Your credit score is determined on how well you manage or utilize that debt ratio. For example, if you have two accounts - one has limit of $6,000 and the other $5,000 - and if your balances are $3,000 on both cards, your percentage of debt would be 50 percent and 60 percent respectively. The greater the percentages of debt, the lower the FICO score. A low score is a strong indicator of possible future financial difficulty. A credit restoration company will investigate if lenders are reporting correct debt balances. If a lender is only showing maximum balance, which is the largest balance ever used since the account was opened, instead of your credit limit, then your percentage of debt will be higher. If an account has no reported credit limit, then the lender must report that limit in order to lower your client's percentage of debt ratio. For example, if your credit limit on one account is $6,000 and your balance is $3,000, then your percentage of debt is 50 percent. But if the lender is only reporting your maximum balance of $4,500, then your percentage of debt will be reported as 75 percent, adversely affecting and lowering your overall FICO score. Delinquent payments are not the same as late payments and each is factored differently in figuring your overall score. A late payment is one that is made after the lender's grace period but before the next payment is due. Late payments are usually not reported. However, a delinquent payment that is made 30 or more days overdue is reported. A delinquent payment will always be applied against the earliest amount due. If you make a delinquent payment in June, it will first be applied to May, making you delinquent for June, with all subsequent payments applied the same way until you catch up to that missed payment. Each monthly payment will be reported as a separate delinquent payment. If that error is not caught early, that single missed payment will wreak havoc to your credit history and will remain there for seven years unless corrected. One of the most overlooked aspects of a credit report is the effect of credit inquiries. Inquiries will reduce your FICO credit score. Lenders know that borrowers who are having financial difficulty often call many brokers hoping to find someone who will find them a loan, mortgage or financing. I am often asked how multiple inquiries from applicants shopping for loans or mortgages affect their credit scores. The bureaus treat multiple mortgage inquiries within 30 days of a score date as one inquiry. They also treat multiple loan inquiries such as car loans, credit cards and bank loans within any 14-day period as one inquiry. So if you do all of your shopping within a short period of time, your credit score will not be significantly impacted. Additionally, your credit score is not affected by inquiries from existing creditors, potential employers and the consumer asking for a copy of his own report. If your potential client has poor credit, you may refer them to a credit restoration company to help them improve their credit score. Dont turn away clients with bad credit! Working with a reputable and reliable credit restoration company can save a consumer thousands of dollars, as well as help you earn additional income by closing their loan. Hedy Berman is vice president of sales at CreditConsultantsUSA Inc. She may be reached at (888) 522-7007 or e-mail [email protected]
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