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Health & Fitness

Mortgage Minutia #2 - There is more to a credit report than a credit score!

In our last Mortgage Minutia Minute, we learned that the number and sometimes the type of trade lines (individual credit records) is part of the credit evaluation for mortgage lending.

But, we are not done with credit yet!  There are many credit items that will require a lender to conduct further examination before an approval can be issued, and many items that require time to investigate or repair.  Today we are looking at:

Disputed Accounts and Credit Inquiries

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Disputed Accounts:

•             When you formally question an account with a creditor or make a claim with a creditor or are in dispute over a credit issue, the account in question is put into dispute on your credit report.  This means that the account is removed from the credit scoring models until the issue is resolved.  However, mortgage lenders want accounts taken out of ‘disputed’ status so that the credit scores are accurate.  Getting an account out of dispute status can take several weeks.  For more information on ordering credit reports and disputing errors here.

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•             If at pre-approval a borrower has disputed accounts the lender needs to do a thorough review and determine if the loan can be done as is or if further action is required.  A pre-approval credit review has to include a review of any disputed accounts.

•             Frequently we see minor claims and we recommend that the consumer simply pay them just to move on and avoid credit complications later on.

Credit Inquiries:

•             A credit report will also show any time another creditor has accessed the credit of the consumer.   This is called an inquiry and a consumer is required to inform the lender if any new debt has occurred as a result of the inquiry.  The lenders need to know this to accurately determine the debt ratios of the borrower.

•             Inquiries become more important at the end of the process when all lenders are required to conduct a credit refresh.  This report does not re-pull the credit report but shows the lender any credit activity that has occurred since the first credit report was pulled.  Any inquires will have to be addressed at that time and if the inquiry resulted in new debt the loan may have to go back to underwriting for re-approval. 

•             Additionally, if the borrower has had a late payment or any other credit issue the underwriter may have to review again.  Since a credit refresh is required to be pulled at the very end of the process any new credit issues could jeopardize the closing.

 

All of us need to remind our consumers not to make any moves that could impact their credit during the house hunting process.  From applying for a store credit card to buying a new car, they must first speak with their lender.

 

Consumers: Ask to see a consumer copy of your credit report to make sure the data reported is accurate. Ask about disputed accounts and if you have any, ask if you need to resolve them now.

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