A Credit Report is required for a mortgage and has costs associated with it.  Some lenders disclose the cost, other’s don’t – never the less it is a cost of doing business.  I require potential borrowers to pay for their own report.  They don’t pay me, they actually pay the credit vendor directly.  I’m not padding the cost of the report to cover other expenses.  It’s actually the exact cost of the report.  The borrower even gets to keep a copy of the report for their records.  It’s actually available immediately after payment via a secure website link.  There the borrower can view/print/save the report for their records.

Now to the benefits for the borrower by investing the small cost of the credit report:

1. Lower total loan costs (your not covering added expenses for other people’s credit reports)

2. Reduced interest rates (lower overall overhead allows us to charge less per loan – a direct benefit passed on to you)

3. An actual hard or soft copy of a REAL Tri-Merged Credit Report with actual REAL SCORES – to use when comparing other lenders.

4. Access to the latest in Credit Optimization Software at no additional cost (For those that need a little tweak to get the best pricing or to just qualify)

The cost of a credit report for an individual is approximately $15. 

The cost of a credit report for a married couple is approximately $22.

Now to the reasons why you may not want to pay for your credit report up-front:

1. You don’t have the money (Probably shouldn’t be applying for a Mortgage then)

2. The other lender you called didn’t require it. (See above)

3. You already know your scores. (There is far more to qualifying and picking a Mortgage than credit score)

Below you’ll find an excerpt from an email chain with a borrower who decided to use another lender because they didn’t want to pay for the credit report.  This is a rarity but certainly has happened before and will happen again.  But I think some of the points made are good enough to publish here.

 Email 1: The Objection

—–Original Message—–
From: C M 
Sent: 12/17/2009 9:28:33 PM
To: Rob Spring
Subject: Re: Mortgage Info From Rob Spring
Rob, 

Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.

Debt limit (Not necessarily a hard and fast rule)

There is generally a debt limit associated with each type of loan, such as a 28/36 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.

Understanding the qualifying ratio

Typically conventional loans have a qualifying ratio of 30/40. Usually an FHA loan will allow for a higher debt load, reflected in a higher (35/43) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner’s association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

For example: 

With a 30/40 qualifying ratio:

• Gross monthly income of $3,500 x .30 = $1,050 can be applied to housing, which includes: (PITI) principle and interest, taxes, all insurance, and HOA if required.          
• Gross monthly income of $3,500 x .40 = $1,400 can be applied to recurring debt plus housing expenses. (That $1,400 must support all recurring debt not including household expenses, such as cable, telephone, and utilities)

With a 35/43 qualifying ratio:

• Gross monthly income of $3,500 x .35 = $1,225 can be applied to housing, which includes: (PITI) principle and interest, taxes, all insurance, and HOA if required.
• Gross monthly income of $3,500 x .45 = $1,575 can be applied to recurring debt plus housing expenses. (That $1,575 must support all recurring debt not including household expenses, such as cable, telephone, and utilities)

Remember these are simply guidelines (There are exceptions to most rules)

Remember these are just guidelines. We’d be happy to pre-qualify you to determine how large a mortgage loan you can afford.  We look forward to helping you buy your dream home.

In today’s increasingly automated society, it should come as no surprise that when you apply for a mortgage, your ability to pay can be reduced to a single number. All the years you’ve been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you’re likely to meet your future obligations.

All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax’s model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, the primary factors are:

Each of these, and other items, are assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 850, with higher being better. Typical home buyers likely find their scores falling between 600 and 850.

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

What can you do about your FICO score? Unfortunately, not much. Since the score is based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes. The most important thing is to know your FICO score and to ensure that your credit history is correct. Conveniently, Fair Isaac has created a web site (www.myFICO.com) that let’s you do just that. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available is some helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score. Each of the credit services offers similar services on their web sites: www.equifax.com, www.experian.com, and www.transunion.com.

Armed with this information, you will be a more informed consumer and better positioned to obtain the most favorable mortgage available to you.

Before deciding on what terms lenders will offer you on a loan (which they base on the “risk” to them), they want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. For the first, they look at your income-to-debt obligation ratio. For your willingness to pay back the loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they’re named after their inventor!). Your FICO score is between 350 (high risk) and 850 (low risk).

Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. In fact, the fact they don’t consider demographic factors is why they were invented in the first place. “Profiling” was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed as a way to consider only what was relevant to somebody’s willingness to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Different portions of your credit history are given different weights. Thirty-five percent of your FICO score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren’t as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is pursuit of new credit — credit scores requested.

Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.

• The individual has applied for credit under several different names (i.e. John Doe and Jonathon Doe)
• Someone made a clerical error in entering or reading information (names, social security numbers, addresses, etc.) from a handwritten application.
• Mix ups with common names. For example, there is likely more than one John Smith living in New York City and often there is the chance that information intended for one John Smith might appear on another John Smith’s credit report as he applies for a mortgage.
• The individual gave an inaccurate Social Security number or the number was misread by the creditor.
• Loan or credit card payments were inadvertently applied to the wrong account.

No matter what the reason, the erroneous information could reflect poorly on your credit file, thus causing approval problems when the time comes to apply for a job or obtain a mortgage. If you find errors, no matter how small, be sure you get them fixed, and make sure that you contact all three credit bureaus with your change.

It’s virtually impossible to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. So the short answer is, you really can’t “on the spot.” But there are strategies you can live with to make sure when you apply for a loan your score is as high as possible.

Make sure that the information each of the three credit reporting bureaus has on you is consistent and up to date. Order a copy of your credit report about once a year, and dispute any inaccuracies.

Note: Theoretically, if a series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries. Changes in the law though have made “consumer-originating” credit report requests not count so much. Also, a series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time. This is because the credit bureaus, and lenders, realize that people request their own credit reports to keep up with what’s on them, and smart consumers shop around for the best mortgage and car loans.

Unsolicited credit card solicitations in the mail don’t count against your credit report, so don’t worry.

The two main components of your credit score are your payment history and the amounts you owe. Bankruptcy filings and foreclosures, which can stay on your credit report for as long as 10 years, can significantly lower your score. It’s never a good idea to take on more credit than you can handle.

Late payments work against you. It’s extremely important to pay bills on time, even if it’s only the monthly payment.

Don’t “max out” your credit lines. Since the size of the balance on your open accounts is a factor, lower balances are better.

It’s said that by carefully managing your credit, it’s possible to add as much as 50 points per year to your score.

I have been forecasting for quite some time that Fair Isaac would eliminate the loophole that allows people to quickly increase their credit score by being added as an authorized user on someone else’s established credit card.

Marketers Make Loophole Too Prominent to Ignore

For the most part, this loophole has stayed under the radar until recently when a few companies came out of the woodwork with a marketable service that catered to consumers who will benefit from this practice. These companies recruit people from all over the country who have older credit cards with low debt ratios and offer them $100-$300 for each person they add to their credit card as an authorized user. Then, they market to consumers with limited credit histories and/or high revolving debt ratios and offer to have them added as an authorized user on a seasoned trade line for around $1500 per credit card and pocket the difference. As this practice became more popular, it wasn’t long before the over exposure of this loophole shed light on the flaws of Fair Isaac’s software.

New Software Will Eliminate the Loophole

Under pressure from lenders, Fair Isaac made the decision to invest the money into correcting this loophole. The correction is fairly simple: When Fair Isaac takes that snapshot of somebody’s credit file, they are going to look at one extra field that they previously had not looked at when generating the score. That field is the one that says who is responsible for that account.

If the scoring software sees that the person is the primary on the account, then it will score the report just like it had done before and no change to the credit score will take place between the old and the new scoring model. This will also hold true if it says that the account is a joint account. But if they see that the responsibility on that account is as an authorized user designation, they will completely ignore that entire account when calculating the credit score. It doesn’t matter if the authorized user was added five years ago or yesterday; they will instantly lose the benefits created, if any, from that account being shown on their credit report.

Advising Clients Going Forward

Due to the fact that the scoring model is changing in a few months coupled with the fact that lenders are denying applications in some instances if an authorized user account is present, I would advise that people refrain from getting added as an authorized user immediately since the benefit will soon be gone and taking advantage of that benefit before it leaves may leave a person with no loan at all due to rejection from the lender.

Written by Edward Jamison Esq.
Creator of www.CreditCRM.com

 The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.

 If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter:

 1. The first thing to do is get a copy of your credit report from each of the three major CRAs: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com.

 2 In a written letter, tell the CRA what information you believe to be inaccurate. Include copies (not originals) of documents that support your position. Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction. Be sure to make copies of your dispute letter and enclosures.

 3. Send your letter by certified mail, return receipt requested, so you can document what the CRA received.

 4. The FCRA mandates that all CRAs reinvestigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the credit card company. After the credit card company receives notice of a dispute from the CRA, it must investigate, review all relevant information and report the results to the CRA.

 5. If the disputed information is found to be inaccurate, the credit card company must notify all nationwide CRAs so they can correct this information in your file. Disputed information that cannot be verified must be deleted from your file.

 6. When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the credit card company verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the credit card company.

 7. In addition to the CRA, you should also write to the credit card company about the error. Again, include copies of documents that support your dispute. If you are correct — meaning the information you disputed is found inaccurate — the credit card company cannot use it again. Further, at your request, the CRA must send notices of corrections to anyone who received your report in the past six months.

• For the short version just read the next 3 lines, if you want more… keep going.

I can still write FHA Purchase Loans without restriction at a 620.

I can still write FHA Refinance Loans without restriction at a 640.

Case-by-case basis (restrictions: not normal FHA guidelines) I can still write FHA Purchase and Refinance at a 580

Now the part I feel is important but will probably only be read by a few over achievers…

The answer to that question: “What is the FHA Score now?” It depends on who you ask!  No kidding there is not a definitive answer that covers all the Banks, Brokers, Wholesale or Correspondent Lenders.  They all make their own rules!  (Not really but they act like they do)

If you ask The Department of Housing and Urban Development – the overseer of FHA, they’ll tell you: FHA has never had a credit score minimum.  What how can that be?  If FHA doesn’t have a minimum then why do the banks and lenders impose them?

First we have to understand what FHA really is…its a guarantee, it’s insurance.  The FHA doesn’t actually own the loan or lend the money.  The FHA protects the “owner” of the loan not the borrower.

The owner of the loan is far removed from the loan officer, underwriter, bank or wholesale lender.  More often than not he loan is packaged as a security instrument and combined with a ton of other loans and sold in bulk on the open market as a “Mortgage Backed Security”

Now we need to understand the flow of a loan once it’s closed: (I really wish I knew how to make a flow chart on here)..kind of cave man like but I hope you get the idea…

OK so now we know that the loan ends up in the same place, regardless of where it’s originated.  Right?

Now back to the minimum score requirement…the reason why the Broker says they have a minimum score is because the Wholesale Lender imposes a minimum on the Broker.  The reason why the Wholesale lender has a minimum is because the Bank/Correspondent Lender imposes a minimum on them and so on….  For many the minimum imposed is tied directly to past loan performance. 

(here comes the answer) 

And ultimately the minimum is forced by the Bank/Lender that is selling the loan to the open market.  The bank that is involved has performance guarantees in place with the investor that is packaging the loans.  If the loans don’t perform to the set standard the bank must cover the difference.  If their performance slips too far….they need to put higher quality loans in the pool to bring up the performance level of the whole pool. 

Here is my FINAL ANSWER: Depending on who the “END” investor/bank is that is why you are being told “The FHA Mimimum Score is….”

I really hope this helps, I’ll be glad to discuss it further with anyone that would like to.  Feel free to comment below.