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].
