 |
|
|
|
|
Easier access to credit scores may soon spread nationwide
By Jean Newton
The California Association of Realtors' landmark credit-scoring legislation that allows consumers access to their credit scores as of July 1 will now be mirrored in federal legislation. The association endorsed the Consumer Credit Score Disclosure Act, sponsored by U.S. senators Wayne Allard (R-Colo.) and Chuck Schumer (D-N.Y.) that would require full disclosure of a consumer's credit when a prospective home buyer applies for a mortgage.
"We're pleased that senators Allard and Schumer were able to build on the momentum created by the passage of SB 1607 last year, which gave Californians the most consumer-friendly law involving credit disclosure in America," said the association's president, Gary Thomas. "Our legislation marked a milestone for home buyers in California, and it is appropriate that all Americans should have the same right to their respective scores."
The California Association of Realtors, one of the largest state trade organizations in the United States, will be working with senators Dianne Feinstein and Barbara Boxer to garner their support for this legislation Thomas said.
Now that consumers have access to their credit scores in California, what should they know about the sometimes confusing process of getting a mortgage loan?
Understanding the mortgage loan application process is one of the first steps in understanding why home buyers should pay attention to their credit report and credit score. When potential home buyers find the home of their dreams, they usually need to get the money to pay for it through a mortgage loan. The lender then needs to determine whether to grant the loan by making sure the home buyer has the capability to repay the loan.
To determine whether they homebuyer is a likely candidate to repay the loan, the lender will review and verify a variety of information requested on the loan application. The lender assesses income level and looks for additional income such as alimony or child support payments, investment earnings or other sources of regular income in addition to the main source of income. The lender also verifies employment and the length of time worked at the current job. Lenders look at monthly expenses as well as the amount of money already owed, including any other financial obligations such as alimony or child support. Then, the lender examines credit history to see how debt has been managed, determining borrowing style and whether bills are paid on time.
The credit history review is a critical component in the mortgage loan process because the ability to manage credit is a key factor in determining whether a home buyer is a good credit risk and has the potential to repay the loan. The lender orders a credit report from a credit reporting company or credit bureau to get the information needed.
For consumers, it's a good idea to obtain a copy of the credit report prior to applying for a mortgage loan to make sure all the information a lender sees is accurate. Reports are available online from the three main sources lenders use for consumer credit information at Equifax, www.equifax.com; Experian, www.experian.com; and Trans Union LLC, www.transunion.com. There is a charge of $8 to obtain a credit report in California. Ordering the report at least two months before applying for credit is recommended, especially if the report contains inaccurate information.
Errors on the report can be corrected by notifying the credit reporting agency. If there is a dispute, both federal and California law allows 30 business days for an investigation. If negative information cannot be verified it must be deleted and any errors must be fixed. A corrected report can then be sent out to those who have requested the report in the past six months. If negative information is in dispute, a written explanation can be submitted and must be included in the file along with the negative information. Since identity theft has become a concern, checking credit reports every six months or at least annually is a good way to keep on top of personal credit information.
Once the credit report is obtained, the lender evaluates the information, often by using a credit score. The credit score is a numerical measurement that summarizes a borrower's credit report, taking into account items based on the record compiled by the credit bureau, such as existing credit and payment history. The credit score is calculated by the credit bureau, not the lender. While the credit score is one factor the lender uses to evaluate a mortgage loan, the final decision is made after careful analysis of all information collected by the lender. Credit scores do, however, play an integral role in the process.
Credit scoring is not new. Banks and other lenders have used credit scoring for more than 30 years on many types of consumer loans. What is new is that consumers now have access to their mortgage lending scores. Since credit scores can affect whether a borrower gets a loan or not and sometimes what interest rate will be paid, it's important to be aware of how credit reports and scores affect the process. For more information about a mortgage-lending credit score, commonly called a FICO score, consumers can check out www.myfico.com. For a fee of $12.95 consumers can obtain their FICO score online.
Mortgage lending scores range from about 300 to 900 with the higher credit score indicating the less risk of future default on the loan. A credit score report should provide details about what the score means and what criteria was used to determine the score. If a score is lower than anticipated, the consumer needs to understand the affect it can have on the ability to secure a loan.
Consumers can improve credit scores over time by following some simple rules to improve credit health. First, avoid paying bills late or becoming delinquent on credit cards, automobile loans, or other installment loans.
|
|
|
|
Cupertino, California Since 1947
