If you want to get a mortgage you need to have solid credit, but that’s a problem when you consider an estimated 40 million credit reports have errors big and small.
Credit dings, such as outdated information and factual errors, can knock down credit scores. In turn, lower credit scores can translate into higher interest rates and in some cases no loan at all.
As a consumer, you now have certain rights to both see your credit report and to seek changes when it includes mistaken information. However, getting changes made may not be quick or easy, the burden is on you to prove that the credit card data is wrong to the satisfaction of the credit reporting agency (CRA).
However, new legislation from Rep. Maxine Waters (D-CA) has now been proposed that would change the credit reporting system. According to GovTrack, the bill – H.R. 5282 – has a 2 percent chance of passage, not good odds at all. Then again, stranger things have happened.
What makes the proposal important for mortgage borrowers is that whether it passes or fails, it should alert everyone to strange crevices in the credit system which hide potential pitfalls.
For instance, it’sestimated that 15.9 million people get free credit reports from AnnualCreditReport.com, a site authorized by the federal government. That sounds like a big number, but what it really means is that 90 percent of the people who might benefit from this service never use it.
Did I mention it’s FREE?
This is a big deal because a lot of credit reports have errors. As a mortgage borrower, you not only want to get them removed, you want to do this well before applying for a mortgage to avoid delays and maybe higher rates. The catch is that there’s no requirement for credit reporting agencies or so-called furnishers – companies that send information to CRAs – to tell you where they got their information. Under the Waters bill, that would change. You would have the right to see the documents used to justify questionable items.
There is now $1.26 trillion in student debt outstanding, a massive increase from past years and debt which in too many cases is not being paid. The Waters legislation gives borrowers “a chance to clean their impaired credit by requiring the removal from reports of adverse information related to delinquent or defaulted loans when borrowers make nine out of ten monthly on-time payments.”
It also “permits those facing extenuating and unusual life circumstances, such as service members receiving hazardous duty pay and residents in federally declared natural disaster areas, reasonable interruptions from these consecutive payment requirements.”
The first part of this proposal has virtually no chance of passage because it would allow borrowers to skip student debt repayments without a credit penalty. The second part likely will have a far greater chance of passage because active-duty military in combat areas may not be able to make student loan payments even if they have the funds. Mortgage lenders commonly have policies to help people hit by floods, hurricanes, fires, and tornadoes, so a parallel system for education loans makes sense. Also, a lot of congressional districts include areas where natural disasters have hit, so this give lawmakers a chance to say that they are doing something for their constituents.
Employers may now ask for credit reports when considering job applications. This creates a substantial barrier for job-seekers who may have low credit scores because of factors beyond their control, such as a car crash, medical costs, or the closing of business where they worked. The Waters proposal would limit the “unfounded, wide-spread use of credit information for employment purposes to two narrow instances: when required by local, state or federal law or for national security clearances.”
Free Credit Scams
The Internet is notorious for “free” credit reporting services which turn out to be very costly. The proposed legislation would end “misleading practices of automatically converting free trial periods for many consumer reporting products and services into paid, monthly subscription services by requiring CRAs to provide explicit opt-ins at the end of trial promotions.” The bill also goes after credit access costs which are “unfair and unreasonable.”
In an election year, it’s hard to know what will happen on Capitol Hill, but in the lame duck session after November 8th a lot of quirky things might happen, including perhaps consideration of the Waters bill. Regardless, whether the proposed legislation passes or not, it also tells you where to look for credit tricks and traps.
Mr. Miller’s 2016 edition of The Common-Sense Mortgage is now available on Amazon.