One of the biggest sources of frustration for someone trying to get a mortgage is suddenly finding out that there is incorrect or old data on their credit reports. It is estimated that one of four credit reports have some error in them, and unfortunately it is unlikely that Bill Gates’ credit will get mixed up with yours. Most likely it will be somebody named Bubba from Texas who makes his living by getting other people’s credit intentionally mixed up with his.
Quite often, errors on your report are the more mundane variety, but any error can be trouble (imagine if you have to pay Bill Gates’ Visa bill every month and prove you could afford it!).
And since most of us can’t really prove that the reason we were late on a payment was because we were in a coma for three months and nobody knew our identity, you really need to regularly check your reports with all three bureaus, Experian, Trans Union and Equifax.
Here are some common, but innocuous errors to look for. First, look for accounts you have paid off but are not showing a zero balance. These can affect your ability to get any type of credit, and affect your credit score.
Second, look for any late payments that show up as 30, 60 or 90 days late. If you are pretty sure it wasn’t late, then call the creditor and discuss it first before writing to the bureau. We have found this to be far more effective because the person who gets the inquiries from the bureaus has a million of them a day and is probably chosen for the position by showing a healthy dose of skepticism toward his fellow man.
On the other hand, those who are chosen for the customer service positions are trained to please the customer, and if removing a late payment from your credit report pleases you, then they are more likely to do it than someone who is paid to be skeptical.
Third, if there is derogatory information that is more than seven years old, then go after getting it removed. Except for bankruptcies and judgments (which show up for 10 years), a credit bureau can only report information about you for seven years. Often what happens is that the date of a delinquency may not be reported, or reported incorrectly, and this can cause the item to remain far longer than seven years.
Insist on correct dates
Another interesting thing I learned about the relationships of delinquency to the credit scoring system (commonly known as FICO scores) is that if a date is not specified for the late pay, then the scoring model will assume that it was as of the last date the item was reported. This can magnify the impact of a late payment on your score several times, so even if you agree the payment was late, then make sure the bureau knows when it was late and insist that information be inserted in the report.
That bit of trivia came straight from the Fair Isaac Co., which invented FICO scoring. Keep in mind that the customer service people at the bureaus get no training whatsoever in how scoring works, and they may try and dismiss your point that it makes a difference to your credit score, but insist on this one.
Recently I had a client who had some credit problems a few years ago and had a charge for $600. He was able to pay $400, but the bureaus were reporting $600. He called Experian and complained that the balance owing was only $200. The creditor agreed, but then reported the charge-off date as of the date of the complaint, which was nearly three years later. This created the problem of the scoring model reading the charge-off as a new charge-off instead of an old charge-off, and that really lowered his credit score. We had to convince the bureau and the creditor that he was entitled to accurate dates, and after several calls we got the matter resolved.
Keep your documents
Another thing to remember is to keep your bank statement and the copy pages of your canceled checks around for at least seven to eight years (longer if you have had a BK or tax lien). Many people seem to just toss them as soon as they have looked at them. If a late payment shows up, then your canceled check is your best proof it was paid. Often you may not be aware of the late pay until years after it happened (unless you check your credit reports) and you will be grateful you saved your bank statements.
If you ever pay off a judgment against, then you know it is your responsibility to get documentation from the guy who sued you that the matter is settled. It is then your responsibility to file with the court a satisfaction of judgment and to later notify the credit bureaus that the matter is settled (by sending them your filed satisfaction of judgment).
There are numerous sites selling credit scores and reports. There is only one site that actually sells you the credit score that a mortgage lender would use (the FICO score) — www.myfico.com. Other scores are simply a product that someone has made up to cash in on borrowers wanting to know their credit score.
Check your credit report
Consumers can get a free credit report annually from each of the three bureaus by going to www.annualcreditreport.com. This is the only site that is authorized by the federal government to give you a truly free credit report. It’s a good place to check up on what’s on file about you, but be sure to check all three bureaus, as all can have far different information on you.
If you think all this is a lot of work and not worth the effort, then consider how much it may cost you by having to wait an extra year or two for your credit to clean itself up sufficiently to buy a house. By that time, you have paid thousands of dollars toward your landlord’s mortgage instead of yours, and likely the price of buying a house will have gone up as well, so you missed out making that appreciation and likely paid thousands of dollars in extra taxes as you missed the mortgage deduction for that period.
Average that dollar amount into the number of hours you spend working on your credit report and likely it will be the highest hourly “wage” you have ever made. Nobody ever said high paying jobs were easy and undertaking cleaning up your credit report may not be an easy task. But look at the financial benefits!
Chris Neuswanger may be reached at Macro Financial group in Avon at 970-748-0342. His email is firstname.lastname@example.org. He welcomes mortgage related inquiries from readers.