The Oregon lawsuit awarding a woman $18.6 million in punitive damages from Equifax is a big reminder why we should check our credit report at least once a year. Julie Miller contacted Equifax eight times between 2009 to 2011 to fix mistakes including her social security number and birthday on file. She didn’t make much progress.
The Federal Trade Commission found in a 2013 study that 21% of the 2,968 credit reports they investigated contained errors. The survey also found that 5% of the errors represented issues that lead consumers to be denied credit. Various other studies have also shown that 25-30% of credit reports have errors. Pretty high if you ask me.
The purpose of checking your credit score before applying for a mortgage or a loan isn’t only to assess the viability of getting such a loan and figuring out the expected interest rate. The main reason why I check my credit score once a year is because of identity theft and errors. If I’m not taking out credit, someone else better not be using credit in my name!
MY PAINFUL EXPERIENCE WITH CREDIT SCORES
My 2012 home mortgage refinance almost got derailed due to a $8 utility bill that was not paid by my tenants when they moved out in 2010. I had no idea that PG&E ended up filing a claim against the credit agencies, knocking down my TransUnion credit score by 100 points to 687 at the time.
Due to this report, my mortgage refinance process was delayed by another 10 days for a total refinance period of 100 days until I forced PG&E to write a “Clear Credit Letter” to my bank. Talk about stressful, since I wanted to lock down a $300/month savings before leaving my job. Always refinance before leaving or changing jobs please. No W2 income means you are dead to banks. Here are some mortgage refinance solutions if you have already left your job.
Ignorance is not bliss when it comes to knowing your credit score and making sure your credit report reflects your true financial picture. For two years I thought I had excellent credit in the 790+. It was like walking around with a tumor in my body thinking everything was fine and dandy until it isn’t.
CHECK YOUR CREDIT REPORT TODAY IF THE FOLLOWING APPLY
* You are looking to buy a home. If this is your first home, having a good credit score and clean report is more important than ever because banks don’t have a history of mortgage payments to judge you by during their decision making process. The housing market is back. The winning bidders are ones who pay cash or have a huge down payment because that provides comfort to the sellers that less things will go wrong. If you’re one of the typical buyers with a 20% downpayment and hit a roadblock in terms of getting financing for your dream home, you are probably going to get dropped like a hot potato by the seller.
* You want to refinance and plan to use your credit score as leverage to convince lenders to offer you the lowest rate. Lenders have used credit scores as excuses not to give you the best rate. This is your opportunity to turn things around in the negotiation process by not only knowing your score but leveraging your score for a better deal. The average credit score for a rejected refinance applicant is 729!
* You are looking to rent an apartment. As a landlord, the credit score and report is one of the most important criteria I use in choosing a tenant. If a serious prospective tenant doesn’t come prepared with documentation (ID, bank statement, credit report, references, letter of employment) then they will not be considered since everybody else does come prepared. All I want is for the tenant to be respectful and to pay the rent on time.
* If you have gone into foreclosure or bankruptcy. From 2008-2001 foreclosures and bankruptcies skyrocketed due to the economic meltdown. It takes three to seven years to potentially get back your pre-foreclosure, pre-bankruptcy credit score. You should probably track your credit score like a hawk during this time period because a four year spread is huge to wait until you can move on with your financial life again. Here’s how much a foreclosure will hurt your credit score.
* You are planning on leaving your job to become an entrepreneur or take a break. Most entrepreneurs fail, which is why banks don’t provide mortgages or refinancing to people without a history of stable W2 income. I went to inquire about another refinance six months after leaving my job and this bank would only let me refi if I deposited $1 million in liquid assets with them. Not going to happen. Although lending standards have loosened, they are still quite tight. Here’s an article I was interviewed in the LA Times about the difficulties of refinancing.
* You are applying for a new job. It is becoming more common now for employers to check your credit score before hiring. The logic is that if you aren’t good with your own money, there’s a chance you won’t be a responsible employee. We discuss about whether an employer has a right to check an employee’s credit score before hiring.
* If you’ve been late on a payment. There are generally 15-30 day grace periods by credit card companies and banks if you are late on a payment before they report you. You’ll usually be assessed a late fee charge. However, you never really know until you check for yourself. If you’ve had multiple late payments over the past 24 months, it’s a good idea to check. One late payment can kill your credit score.
* You want to help a loved one. Part of the reason why Julie Miller sued and the jury awarded her such a huge punitive damage sum is because she was trying to help her disabled brother, who couldn’t get credit either. It’s one thing to borrow money to help a brother buy a sports car. It’s another thing to not be able to get a line of credit for basic survival needs.
* If you’re getting into a serious relationship. There are dating sites nowadays that rate people based on their credit scores. You obviously want to know what yours is if you plan to be on these sites. For more serious relationships such as marriage, it’s important to start off with all the financial cards on the table. Income and liabilities are assumed by both parties. You can’t help your partner improve their credit score if you don’t know what it is.
It’s much better knowing the problems up front so you can take steps to fix your credit report rather than find out during the process of applying for credit or after the fact.
I check my credit score and credit report once a year because shady things happen all the time. I’ve been burned before and I don’t want to go through the stress again if I ever do apply for credit. You can check your TransUnion credit score for free at GoFreeCredit.com which I am an affiliate. If you don’t want the credit monitoring service that warns you about fraud, simply cancel before the trial period is up.
Readers, anybody ever have a mistake on their credit report? If so, what was it, what did you do to fix the situation, and how long did it take?
Photo: The Lion Monument, Lucerne, Switzerland, 2013.