Credit Errors Lead to
Higher Interest Rates

If your credit score is high enough, lenders agree you'll have the best chance at qualifying for the lowest interest rate on a new home mortgage.

But errors hidden in your electronic credit files may be depressing your score, and you may not even know it. Many times the errors in your credit file are not only not your fault, they're easily and quickly correctable. One of the most common mistakes is confusion over names within families.

"I hadn't spoken to my father in years, not since I came out," says graphics designer Rodney Altcatel Jr.
"When I was looking around for a condo with my lover, I got hold of my credit report and found an unpaid bill at Marshall Fields…except I never had an account there. But my father did," recalls the Chicago native.

After a letter to Marshall Fields and an in-store visit, and some back and forth with the credit agency, Altcatel Jr. got the mistake removed from his report.

"Once the case of mistaken identity was fixed, my credit score went up 30 points," says Altcatel.

A Quicker Fixer is In

New developments in the mortgage credit arena offer consumers the chance to check out and correct their credit files quickly. This means a better rate quotes from lenders. Some online data-correction services can push up scores in less than a week.

California-based Standfacts Credit Services' Scorefacts.com is a model for fixing credit files.
Lenders and brokers participating in the Scorefacts program instruct Standfacts to flag all loan applicants' credit reports with scores below a designated level. This predetermined cutoff point separates applicants who qualify for the lender's best rates from those who don't.
When the applicants' scores are below the designated mark, they receive an email saying that their credit files contain data they "may wish to review." Applicants can then go to Scorefacts Web site, punch in an access code, and examine the full electronic credit files that were pulled from Equifax, Experian and TransUnion, the three national credit bureaus.

If any of the negative information depressing their scores is wrong, applicants can immediately begin the process of correcting the files. And they do mean immediately.
The boon to lenders – and applicants – is that Standfacts promises that most errors can be corrected within 72 hours of receipt of documentation from creditors confirming the mistaken information. At that point, the loan applicants can be "rescored" – and a better interest rate can be obtained.
Lenders and brokers use something called a FICO credit-risk score. Through Standfacts, FICO software is installed at each of the three national credit bureaus. Then, when electronic credit files are ordered and run through the software, credit scores are generated

Depressed Scores Detrimental to Your Mortgage

High scores of 720 and above, indicate a low risk of borrower default; these high credit scores are exactly what lenders look for, especially in low documentation applications (where applicants don't want to give over all of their financial information, but can still get low interest loans). Scores in the 600s and below, however, are considered higher risk.

But as graphics designer Altcatel discovered, some negative information in a credit file may be mistaken. Instances of mistaken identity, an incorrect report of a nonpayment on a debt or a misfiled account by a store regarding a charge account are all common and easily correctable negatives.

Depressed scores on a credit report can be devastating to your ability to qualify for a low interest mortgage. According to MyFico.com a consumer applying for a mortgage with a FICO score between 500–559 would qualify for no better than a 10.2 percent fixed-rate 30-year loan.

Compare that with a score of 700–719, the rate would drop to 6.7 percent, and above 720 the borrower would get a 6.6 percent loan.

The presence of unseen bad data in your files cost you 2 or more percentage points – and that translates to tens of thousands of dollars of higher monthly payments on your home loan.