You finally found the house, negotiated a price and the contract is signed. What can go wrong from this point? Plenty.
You may have read about a little glitch involving credit scores back in August. At that time, it was reported that Equifax, one of the three agencies that monitor credit scores, reported inaccurate credit scores for millions of would-be borrowers over a three-week period from March 17 to April 6. The problem was reported to lenders in May.
Equifax reported that some people who may have been applying for mortgages, auto loans and credit cards may have had their scores lowered or increased by 20 points or more. A 20-point error in a credit score could easily lead to mortgage applications being rejected. This is one of those unfortunate errors that affect borrowers who may have done their homework prior to making an offer on a home and who are sure what their credit score is and their ability to go forward with a real estate transaction.
Mortgage lenders typically pull credit reports from all three agencies: Experian, TransUnion and Equifax. The lenders take a look at all three scores and from there create a combined score, according to the executive chairman of Inside Mortgage Finance. This is when the lender is able to determine whether or not to approve the mortgage application and what interest rate to offer. Since only Equifax was affected, the impact may not have resulted in a lot of people being turned down for mortgages. However, it could have influenced the interest rate offered on a loan, resulting in higher mortgage payments.
If you think a recent loan may have been affected by this error in credit score reporting, the first thing is to contact the lender. They need to review the application process and determine if an Equifax credit score was used in the underwriting process and if the Equifax score was lower than the others used. From there, your lender will determine what exactly this means to the outcome of your loan.
This is a great lesson for anyone planning on applying for a loan in the coming months. It would be beneficial to set up alerts with each of the three credit reporting companies, so you know quickly if there is something unusual on your credit report. Ultimately it is your responsibility to pull credit reports on a regular basis and go over them with a fine point, looking for postings that do not apply to you. You always have the ability to challenge anything that looks like an error.
Equifax’s position is that there was no shift in the vast majority of scores during the three-week time frame. For those consumers who did experience a score shift, their initial analysis indicates that only a small number of them may have received a different credit decision. If you feel you need to make a correction on a credit report or score, contact the Consumer Financial Protection Bureau, which can provide you with a list of instructions and a sample letter that will assist you in filing a claim.
I can’t say enough times that the process of purchasing a home, frequently the biggest investment of a lifetime, has a lot of moving parts. It is up to you as the borrower to
be proactive every step along the way. As we’ve seen too many times, large financial institutions make mistakes, so keep checking your credit reports and scores, especially if you’re looking for a home.
It’s not over ‘til it’s over, and heaps can go wrong before it is.
