Mountain Mortgage Guy: Credit reporting changes will impact homeowners, maybe for the better (column)
When you apply for a mortgage loan, one thing that impacts how much you pay and how easily you get the loan is your credit score. Lenders look at all three credit bureaus and typically use the middle score to set the parameters for your loan.
There are many companies out there that have made a cottage industry, of sorts, selling credit scores. Companies such as Credit Karma and a host of others have tapped into consumers’ desire to know their scores and developed their own scoring models as a product to sell. Your Credit Karma score may be indicative of your credit history but is meaningless to any creditor in considering whether to extend credit.
Mortgage lenders use one standard, the FICO score (from the Fair Isaac Co., which is deemed to be the gold standard for predicting consumer behavior). Over the years, the scoring system has evolved as more and more historic data on consumers has become digitized and easily analyzed. The goal is to have a magic box that lenders can rely on to gauge the risk of lending money to any one consumer.
Getting a break
As a result of all this study, it’s been decided that maybe some of life’s little bumps in the road really don’t mean much in terms of your ability to manage your money and pay on time. Many people have had their credit trashed for as little as an unpaid parking ticket that got sent to a collection agency. Medical collections can really kick you when you are already down. I recall a client who had pristine credit but a low score because of an overdue library book fine.
Consumers have finally gotten some relief with some “new rules” coming out this summer, and for some, it will be a huge help. Amongst the changes is a requirement that a medical collection cannot be reported to a bureau until it is 180 days old, giving the consumer a chance to pay it. In addition, if the collection does get reported but you pay it, then the collection agency is required to remove it from your credit report.
Another improvement is the removal of any derogatory collection items that were not the result of a contract or agreement between the consumer and the creditor. This means items such as parking tickets and library fines cannot be reported.
Collection accounts that have not been updated in six months by the collection agency will be updated, as well.
In addition, the three bureaus now are required to work together if a consumer’s report is really messed up, meaning that if a report contains multiple identities and Social Security numbers, then the three bureaus will have to cooperate to clean up all of the consumer’s reports, instead of the consumer having to work with all three.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage-related questions from readers. His website and blog can be found at http://www.mtnmortgageguy.com.
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