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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: nextrade! who wrote (10602)	5/10/2003 7:28:45 AM
From: nextrade!	Read Replies (2) \| Respond to of 306849

FICO, Scoring lapses abound Housing Update/by Kenneth R. Harney Friday, May 9, 2003 businesstoday.com WASHINGTON - Were you charged a slightly higher rate on your mortgage or homeowner's insurance because your credit score wasn't up to snuff? It's possible that nobody bothered to tell you. But if you did learn about it, do you know which of your scores was used to charge you extra? Just about every American adult has three scores, and they can be different enough to cost you tens of thousands of dollars, depending on which score is used to ``price'' you. According to a national study covering more than 500,000 consumers' FICO scores, one out of three Americans has a variation of 50 points or more from his or her high to low score. One out of 20 Americans' FICO scores varies by 100 points or more; the average variation is 43 points. Yet mortgage lenders and insurance companies frequently use hair-trigger score cut-offs to price their products. A person with a FICO score just a few points below 620, for example, might be quoted an interest rate one-half of a percentage point higher on a 30-year loan than a person with a score slightly above 620. Rate differentials like that produce huge differences in cumulative payments over the term of a mortgage. Yet no federal or state law requires lenders or insurers to use any one of the scores. Though many mortgage lenders and brokers use the middle score of applicants to quote rates, they are free to price you on your lowest score - effectively yielding them a higher interest rate and a more valuable loan for sale. The massive independent study of more than 500,000 consumers' credit files and scores, conducted by the National Credit Reporting Association and the Consumer Federation of America, concluded that scoring variations and errors in electronic credit files put one out of every five Americans at risk of being overcharged on home loans. This is especially the case for consumers with borderline scores - where the score range from high to low is between 575 and 630. Why do scores vary so significantly? The simple answer is that the information contained in each of your three national credit reporting files - maintained independently by Equifax, Experian and TransUnion - differs in content from the others, sometimes dramatically so. The American credit reporting system is entirely voluntary. No mortgage company, department store, bank, or credit card issuer is required to report your account information or payment behavior to any one of the giant repositories. National lenders and credit account holders tend to report to all three repositories. But regional or local creditors may only report to one or two. Other national lenders intentionally withhold information on some of their best customers so that competitors will not target them with marketing offers. The national scoring study turned up sobering findings on missing credit data: 78 percent of consumers' files examined by researchers were missing at least one revolving credit account in good standing. 33 percent were missing a mortgage account that had never been late. 67 percent were missing non-mortgage installment accounts that had never been late. How can you be certain you are not overcharged on a mortgage because the score selected by the lender is not your best? For starters, order copies of your full repository files once or twice a year. Examine each to make sure all your significant credit accounts (called ``trade lines'') are included on all three. If you find that your mortgage lender - or more likely, one of your credit card issuers - isn't reporting to one or more of the repositories, contact the lender and demand to know why. Second, be on guard for errors of commission as well as omission in your repository file. The national credit study found incorrect information ``rampant'' in the consumer files it examined. Errors can drag down your scores. Demand that the creditor correct its mistakes immediately. You should contact the Federal Trade Commission (www.ftc.gov) if the information doesn't get corrected promptly.