If you haven’t heard, the three nationwide consumer reporting agencies, Equifax, Experian, and TransUnion, implemented a new policy on July 1st as the result of a settlement with attorneys general of more than 30 states.
The attorneys general alleged that liens and civil judgments were often attached to the wrong people, unfairly hurting their ability to access credit. According to the settlement, if a lien or judgment does not match three of four criteria of name, address, social security number or birthdate, it will no longer appear on a credit report. This will result in raised credit scores for millions of American consumers.
According to Shawn Conley, Mortgage Loan Originator at LoanDepot, it was no secret that the previous credit scoring model was flawed and rendered incorrect data, which often had a huge negative impact on credit scores. Shawn says that getting incorrect information removed or updated from your credit history can be an arduous task and having accurate information on your credit report is very important when applying for a loan. Shawn explains that “the difference of 1 point in your credit scores can mean .25% better or worse in your interest rate. On a $300,000.00 loan, that can cost or save you around $45.00 per month. Assuming a 30 year mortgage, that can make a difference of saving, or spending over $16,000.00 throughout the 30 years.” Since the repercussions of your mortgage rate can be so profound over the course of the loan, Shawn says, “It’s only fair that the information within the credit report be accurate so the consumer is getting what they deserve.”
The new policy implemented by the credit reporting agencies will result in raised credit scores for a projected 12 million American consumers. Note that you don’t have to do anything to initiate this change to your credit report as the agencies are rolling it out automatically this month. About 11 million American consumers could see an increase of about 20 points, and over 700,000 will get as much as a 40 point bump. And that could open the door for them to receive lower interest rates and better mortgage terms, beginning this summer.
The big winners are people whose credit is considered “fair” as the increase can put them into the “good” category, which will give them access to better interest rates. And since employers these days routinely check applicants’ credit histories, a better rating can even mean a better job!
People currently shopping for a home mortgage may benefit the most. For example, a potential home buyer with a credit score of 560 or 570 who gets a 10 or 20 point boost may then qualify for a very attractive FHA loan. To qualify for a FHA mortgage with a down payment as low as 3.5 percent, the borrower needs a credit score of 580 or higher.
If you are thinking about applying for a mortgage and would like to check your credit status, give the Michael Edmond Team a call at 914-437-6292. We work with experienced mortgage experts, like Shawn Conley firstname.lastname@example.org, who can explain all the details of the mortgage application process. And we’re always here to help you with all of your real estate needs or questions.