Homebuyer beware of authorized user accounts

 Credit Scoring, Loan Guidelines  Comments Off on Homebuyer beware of authorized user accounts
Mar 142019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The authorized-user account: It’s been a trick folks with weak credit histories have used for a long time to improve their credit scores. Mortgage lenders have grown wise to this trick, and they’re finally clamping down on its use.

An authorized-user account is an account on which a consumer has signing privileges, but the consumer’s credit history wasn’t used to open it. For example, a parent might allow a child to be an authorized-user on one of the parent’s credit cards to help the child establish credit.

A few years back, credit repair companies started promoting this as a way for folks with weak credit to quickly improve their credit scores. Someone with strong credit would allow the consumer with weak credit to sign on an account, even if the two individuals had no other relationship. Unfortunately for creditors, the score improvement didn’t reflect the consumer’s true credit risk.

Fannie Mae and Freddie Mac loan guidelines now instruct lenders to carefully review loan applications for which a borrower has an authorized-user account. The intent is to weed out potential borrowers who used an unrelated individual’s strong credit to try to improve their chances for loan approval.

According to the guidelines, it’s acceptable for a borrower to be an authorized-user on an account belonging to another borrower on the loan, with the borrower’s spouse, or an account on which the borrower makes the payments.

If these situations don’t apply, the guidelines instruct lenders to review the borrower’s credit to make sure an authorized-user account didn’t have a significant impact on the borrower’s credit scores. If the borrower otherwise has weak or little credit, it’s possible the borrower’s loan request will be denied.

Credit bureaus may boost your credit score

 Credit Scoring  Comments Off on Credit bureaus may boost your credit score
Feb 152017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The three national credit bureaus (TransUnion, Equifax, and Experian) announced that they will change the way they collect public record data. These are items like judgments and tax liens that appear on your credit report. The change is due to concerns the bureaus have with the accuracy of the data. Specifically, the bureaus will:

– require public records to have minimum identifying information including a person’s name, address, and SSN and/or date of birth; and
– require public records to be collected and updated at more frequent intervals.

So, why should you care? The bureaus have analyzed the potential effects of this change and have concluded that:

– approximately 96% of civil judgment records may not meet the new requirements; and
– as many as half of tax lien records may not meet the new requirements.

If a record fails the meet the new requirements, the credit bureaus will not include it on your credit report.

The changes are expected to take effect no later than July of this year.

The undisclosed cost of trended credit data

 Credit Scoring  Comments Off on The undisclosed cost of trended credit data
Aug 222016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

You may have heard that lenders are going to start using credit reports with “trended data.” Credit bureaus claim it will increase the number of borrowers with excellent credit.

Currently, your credit report is a snapshot in time of your credit usage. The report shows your current account balances, limits, and minimum payments. A trended credit report shows how those amounts have varied over the last two years. Thus, it augments usage with insights into your credit habits. Do you pay off your credit cards each month? Do you pay more than the minimum balance? A trended report will reveal these habits.

What you may not have heard is how trended data reports will effect your closing costs. The credit bureaus are charging more for all the extra data, and that cost gets passed on to you, the loan applicant. It appears the credit report fees you see on your closing statement will jump by about $10.

Will your credit score improve with trended data?

 Credit Scoring  Comments Off on Will your credit score improve with trended data?
Apr 252016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Fannie Mae has announced that this summer it’s going to require that lenders start using “trended” credit data to qualify borrowers. What in the world is trended credit data and how will its use affect your ability to qualify for a mortgage?

Currently, your credit report is a snapshot in time of your credit usage. The report shows your current account balances, limits, and minimum payments. A trended credit report shows how those amounts have varied over the last two years. Thus, it augments usage with insights into your credit habits. Do you pay off your credit cards each month? Do you pay more than the minimum balance? A trended report will reveal these habits.

TransUnion claims credit scores based on trended data will increase the number of what it calls prime and super-prime consumers by more than 3 million. Analysts expect those who pay off their credit card debt every month will see their scores rise. Other winners may include folks whose trended data shows their revolving balances decreasing over time.

Bill to remove medical collections will help homebuyers

 Credit Scoring  Comments Off on Bill to remove medical collections will help homebuyers
Jun 032015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Congress is considering a bill, the Medical Debt Relief Act, that could be a boon to thousands of homebuyers. The bill would require credit bureaus to remove medical debt from a person’s credit report within 45 days of the debt being settled or paid.

The legislation addresses a breakdown in our health insurance system that allows creditors to ding patient’s credit reports when a medical claim isn’t handled correctly or in a timely manner. Patients are responsible for what insurance doesn’t pay, and I’ve seen many cases where patients didn’t realize there was a residual balance on a bill. Medical providers understandably want to get paid, and their recourse is to file a collection action. Unfortunately for the patient, this action could ruin an otherwise pristine credit score and result in thousands of dollars of extra interest when they apply for a loan.

Congress has tried to pass similar legislation a number of times in the past, so passage isn’t guaranteed. However, numerous consumer and industry groups have endorsed this bipartisan bill, which may give it a chance this time.

Getting spanked for paying your bills

 Credit Scoring  Comments Off on Getting spanked for paying your bills
Feb 262015
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Before you use your tax refund to pay down your credit cards, here’s something to consider. Your financially responsible action just might hurt your financial situation.

I’ve seen this happen before, and it’s really frustrating. You’ve been carrying a large credit card balance, slowly paying it down, padding the bank’s pocket with your interest payments. You get a nice tax refund and decide to be financially responsible. You use it to pay off half the card balance, thinking it will boost your credit score. Instead, you get a letter from the bank saying they’ve cut your credit limit to just a couple hundred dollars more than your new balance. You’ve done nothing for your credit score because the card still appears to be maxed out, and you’ve lost spending power. What a deal!

So, what can you do? You can try to contact the bank and explain why your financial situation has improved. It may reinstate the limit. It might raise it, but it probably will do nothing.

The Credit Mulligan Bill

 Credit Scoring  Comments Off on The Credit Mulligan Bill
Oct 172014
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Many of us have experienced the frustration of trying to correct errors on our credit reports. Rep Maxine Waters thinks she has a solution. Let’s talk a look at her bill she says will protect consumers from errors on their credit reports.

Some of the highlights are:

– reduce to 3 years the length of time derogatory information can remain on the credit report;
– remove derogatory information that resulted from consumers taking out mortgagess they couldn’t afford;
– remove debts that have been paid off or settled; and
– remove derogatory information related to private student loans if the consumer has made two on-time payments in a row.

Now, I’m no big fan of the credit reporting agencies, but this proposal is just silly. We should call it the “Credit Mulligan Bill.” If you screw up your credit, you simply ask for a do-over.

If something like this passes, interest rates will rise. Creditors will not be able to identify those with poor credit habits, and those with good credit will subsidize the bad behavior.

A more reasonable step towards reforming credit scoring would be for Fannie Mae and Freddie Mac to adopt the new credit scoring models that we discussed a couple weeks ago.