Credit Bureaus and Your Mortgage
By Elizabeth Dougherty
This past week HomeSeeker discussed
the importance of your credit score. It is
also important to understand how credit
reporting companies work and how they
impact your mortgage application and your
mortgage rate.
When you apply for a mortgage, you
give your lender permission to "run your
credit." Your lender will then access data
from the three most popular credit reporting
companies, and purchase a copy of your fi le.
The three major credit-reporting companies
used by mortgage lenders are Equifax,
Experian and TransUnion.
Selling your credit information is big
business. HUGE. Annual revenues for these
companies are Experian at $3.1 billion, TransUnion
at $1.1 billion and Equifax at $1.4
billion. These companies have fi les on you
and hundreds of millions of other consumers
in more than 60 countries worldwide.
Because more and more businesses want to
access your credit report, these companies
are growing at rates of 14% to 25% per
year.
Almost every lender we contacted in
Lee County "runs" all three "bureaus" on
you when you apply for a mortgage. Each
company has a different scoring system,
although they are all fairly similar. The
majority of lenders in Lee County usually use
the middle score of the three companies in
determining your credit risk. Lenders also
use other factors like income, time on the
job, etc., but your credit scores are the major
factor for them.
A higher credit score means a lower
interest rate on your mortgage. The amount
of money you can save on your mortgage, by
having a high score, can add up to tens of
thousands of dollars.
As an example, according to
myfico.com a $300,000 loan to a person in
Alabama with a score of 760-850 would be
approximately $1,771 per month for a 30-
year, fi xed interest rate loan. A person with
a score of 620-639 would pay $2,088 per
month. While this may not seem like much,
over the life of the loan the difference is
more than $114,000.
One problem is that credit fi les are often
far from accurate. In 2004, the consumer
protection group U.S. Public Interest Research
Group (PIRG) conducted a study that
showed 25% of all credit fi les contained,
"errors serious enough to result in people
being denied credit or access to favorable
loan rates" (www.uspirg.org). Amazingly,
approximately 60% of consumers never
check their credit report.
Check Your Credit Report - Free
Credit reporting companies are governed
by the federal Fair Credit Reporting
Act, which requires them to correct mistakes
on your file. The act also requires them to
provide you with a FREE credit report once
each year. Do not order it through the credit
reporting companies’ websites. If you do,
they will try to sell you several "services"
along with the report. The only way to get a
truly free, no obligation report is to get online
and go to www.annualcreditreport.com.
Review Your Report
The Federal Trade Commission (FTC)
has detailed information on your credit
rights and how to remove incorrect information.
Their publication "Building a Better
Credit Report" is a good place to start and
you can fi nd it at www.ftc.gov. As we
stated this past week, if you will be applying
for a mortgage in the near future, talk to
your lender BEFORE attempting to correct
your credit fi le. They can show you how to
correct your fi le without damaging your
chances for a mortgage.
If you are doing it yourself, the FTC
website has instructions and sample dispute
letters. Be prepared to get frustrated. Credit
bureaus are notoriously diffi cult to work
with and slow to make changes. Federal law,
however, protects your rights and the FTC
Website is a good place to start.
Elizabeth Dougherty, a resident of
Auburn, is a former Real Estate Broker
and Mortage Broker. She can be
reached at EADougherty1@aol.com.
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