Q&A


Eyal Tropen - Sr. Loan Officer

NMLS # 874253

Improvements in Credit Ratings

Question:

We had credit problems in the past, and could not get a loan we needed. Could recent changes in credit scoring help us qualify for a home loan?

Answer:

Your credit rating is a key factor in determining your eligibility for a new or refinancing an existing mortgage. Recent changes in reporting by the major credit reporting companies cause the credit ratings of many consumers to jump upwards - which will make a difference for you.

Why do we see an improvement in credit scores?

As of April 16, 2018, all 3 major credit reporting bureaus - Experian, Equifax, and TransUnion - will remove, and will no longer include, tax liens in consumer credit reports.

This update comes after a study by the Consumer Financial Protection Bureau (CFPB) revealed the majority of complaints they receive involve incorrect credit report information.

Many changes have been made since last summer. Most of the charges from the civil judgment, and about half of the tax liens have already been removed, so you may have already seen an improvement - if there were any such events in your credit history.

With the removal of the remaining tax liens, the bureaus will also set a higher standard for improving data quality, and refresh the information every 90 days to help protect against incorrect reporting.

Will your credit rating be affected? How much?

LexisNexis Risk Solutions estimates that about 11% of consumers will see a change in credit ratings as a result of the latest changes. Scores may improve by as much as 30 points overall.

In any case, it is a good idea to monitor your current credit rating. The check can be done for free - so why wait?

You can get a free copy of your credit report from each reporting bureau once every 12 months. Since there are 3 bureaus, it is recommended to rotate, and order one report from a different bureau once every 4 months via www.annualcreditreport.com. (Note: If you see the word “FREE” in the URL, this is NOT a free service!!!)

You can also sign up for free monitoring services such as CreditSesame or CreditKarma. The credit rating provided by these sites will usually be higher than what potential lenders (especially for mortgages) would see. This happens because these services use a "soft" credit check, without an associated risk model - whereas qualifying you for a mortgage we would use the most stringent risk model - which usually translates to a 20-80 points gap.

On these sites, you can also find information on how credit scores are calculated, monitor against changes (which may indicate problems such as identity theft, late payment, etc.), or find recommendations for steps to improve your credit score.

How does credit rating affect your ability to finance a home?

Each mortgage program has guidelines for minimum credit scores required for eligibility (although the definitions may vary according to the type of loan, type of property, the down payment, etc.

If previously you have denied for a mortgage, or were approved only under less-favorable terms, you may want to check again. Even though we have seen significant interest rate increases in the last six months, a different product, or an improvement in your credit score may open new possibilities. Never assume that your credit rating will exclude you from getting a home loan - now, or in the future...

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Copyright © 2018. Eyal Tropen NMLS # 874253
Residential Mortgage Loan Originator Licensed in CA, OR, TX, WA

American Pacific Mortgage | NMLS #1850
625 4th Avenue, Kirkland, WA 98033 | NMLS # 1055557
Phone: 425-922-1055 | Fax: 855-549-8730 
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