Monday, March 10, 2008

Don't Screw Yourself By Not Checking Your Credit

I received this question from Donald in Toledo, OH., Sunday morning.

“What would happen if someone else used my social security number for a utility bill and I never lived at that address? This happened about five years ago when I found out about it. Will this hurt the underwriting of the house I am trying to buy”?

During our conversations it turned out that this “utility bill” turned into a collection. Fortunately it was five years old. I also learned that his credit scores are: 615, 625, and 652.


The first thing you want to do when you find out something like this is dispute it with all the credit bureaus: Equifax, Trans Union, and Experian. This process is much easier than it use to be years ago thanks to the Internet. Each of these company’s have a web site full of information you should understand about your credit, credit scores, and how to improve them. You can file your dispute on line from their web site.

The Government mandated a few years ago that every person be entitled to one free credit report each year, …from each bureau. This is a wonderful thing because years ago you were not allowed to even look at your report. You were really up that well known creek and just guess who had the paddles. Get your report once a year from each company and take the time to review it.

There is only one web site you can get these reports from and that is
If your credit scores are high enough this 5 year old, small collection should not prevent a loan from being approved. Since most underwriting is now performed on an automated system you may be required to provide an explanation and supportive documentation or you may even be required to pay the collection.

In this particular case the credit scores are not really bad but they are not really good either. In fact, they are a little low compared to the average. This is a great example as to why you should monitor your credit every year. Don’t wait till you are applying for a loan.

I don’t have a clue what Donald’s employment history is or what his Debt to ratio is or how much he is putting down. These factors all play a part in loan approval and could be considered compensating factors if all three are very strong.

However, knowing what I do know, my recommendation would be that a conventional loan with a high loan to value (small down payment) would be difficult and the interest rate, if it were approved, would reflect the low scores. I would recommend an FHA loan. The interest rates are excellent and require only a small down payment. Again, this is assuming the other factors are in line.

FHA mortgages are wonderful. They are very forgiving about credit, low down payment, and they have some of the best rates on the market. I might add one thing here about the interest rate. At this point in time the par rate is equal to or lower than a conventional loan (depending on the lender) so if the company you are working with is charging you a much higher rate they may be taking advantage of your situation thinking you don’t know any better. Please, shop interest rates.

You can find out more about loan qualification from my web site at Mortgage Underwriters.

That’s it for today. Comments are welcome and if you pose a question I will try to provide answers.




  1. Good Article.

    FHA is becoming a better alternative not only for credit, but pricing. In the last few years FHA in most cases is as good as and sometimes better than Conventional pricing. Fannie Mae has just announced additional pricing tiers based on credit scores and loan to values. This pricing is effective June 1, 2008.

  2. Good input. Maybe we need a course on how to shop for interest rates.