Don't Screw Yourself By Not Checking Your Credit
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by: ConnieSanders
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I teach mortgage underwriting guidelines on the Internet and I also answer questions for consumers and mortgage professionals. I received this question from Donald in Toledo, OH., Sunday morning.
"What would happen if someone else used my social security number for a utility bill and I never lived at that address? This happened about five years ago when I found out about it. Will this hurt the underwriting of the house I am trying to buy"?
I also learned that his three (3) credit scores are: 615, 625, and 652 and that the "utility bill" later turned into a collection. The good thing here is that the collection is five (5) years old.
My answer covered several issues:
The first thing you want to do when you find out something like this is dispute it with all the credit bureaus: Equifax, Trans Union, and Experian. This process is much easier than it use to be years ago thanks to the Internet. Each of these company's have a web site full of information you should understand about your credit, credit scores, and how to improve them. You can file your dispute on line from their web site.
A few years ago the Government decided that every person is entitled to one free credit report each year, from each credit bureau. This is all good. Years ago you were not allowed to look at your report or know what it contained. You were really up that well known creek and nobody knew who had the paddles. Do yourself a favor and get your report every year from each company. Make sure it is correct. There is only one official web site you can get these free reports from, annualcreditreport.com.
This 5 year old, small collection should not prevent a loan from being approved if your credit scores are high enough. Most underwriting today is performed on an automated system so you may have to provide an explanation and supportive documentation and/or you may be required to pay the collection.
In this case Donald's credit scores are not really bad but they are not really good either. Sadly, they are a little low compared to the average. Don't wait untill you apply for a mortgage loan to find out you have a problem.
Donald's employment history, his debt to income ratio, and how much he is putting down play a large part in loan approval. These things could be considered compensating factors if all three are very strong.
However, knowing what I do know, my recommendation would be that a conventional loan with a high loan to value (small down payment) would be difficult and the interest rate, if it were approved, would reflect the low scores. I would recommend an FHA loan. The interest rates are excellent and require only a small down payment. Again, this is assuming the other factors are in line.
FHA mortgages are wonderful. They are very forgiving about credit, low down payment, and they have some of the best rates on the market. I might add one thing here about the interest rate. At this point in time the par rate is equal to or lower than a conventional loan (depending on the lender) so if the company you are working with is charging you a much higher rate they may be taking advantage of your situation thinking you don't know any better. Please, shop interest rates.
About the Author
Connie Sanders built Mortgage Underwriters, a site teaching conventional underwriting guideline to the consumer and professional in May of 2002. Connie just completed http://www.fha-mortgageunderwriters.com to support the rising market for FHA mortgages. Visit her sites today.
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