Getting the loan may mean correcting credit files - quickly

<p>PASADENA, Calif. – It happens quite often for Wescom Credit Union. A member applying for a mortgage learns they don’t qualify because a couple of other loans they’ve already paid off are still on their credit file. Wescom gets the correct information and is able to update the file within two or three days, not the one to three months it could take for the member to work through the process for amending the file. The member, who may now be eligible for a better rate or loan terms, considers it just another credit union service. But it’s actually part of a trend to rapid rescoring, an effort to cut the time needed to correct a faulty credit file. Wescom is pleased because they’ve kept the loan, helped the member, and was able to base the lending decision on more accurate data. Roberta Dominguez, WCU real estate production manager, says it’s “pretty common” to find errors in credit files that are incorrectly lowering a member’s score. “A lot of times it happens when a mortgage gets sold and the payments don’t get applied correctly because the member either wasn’t notified or didn’t read the mail informing them the mortgage was now at another lender,” she notes. On the positive side, correcting the file can hike a member from caution flag status to an approved eligible. “We don’t advertise this at all,” Dominguez says. “We use it when we see it’s a really good loan and we know there are one or two items which could be fixed and let us approve the loan. If there’s a lot of incorrect information, we decline the loan and explain to the member the procedure they need to follow for getting their credit report corrected.” Dominguez says while she loves rapid rescoring, there is some education involved. Borrowers need to understand they must obtain a letter from the creditor involved indicating the creditor has reported something in error. The letter must be on letterhead and signed by the creditor. That’s the hard part, Dominguez says. The borrower has to help the process, but they may tend to put off actually contacting the creditor and getting the letter. Bureau Direct can correct the file within 72 hours – but that’s after the letter has been obtained and verified. So the lending staff needs to understand the process and explain it to the member. John Stanton is co-chairman of Info1 in Woodland Hills, Calif., the company that provides the Bureau Direct product WCU uses for rapid rescoring. He says an example of a common problem is a credit report showing a member is delinquent on a Bank of America Visa card. However, the member never had a BofA card. Yes, the member could contact the credit bureau or bureaus directly and correct the information. But that takes time. “The only reason our service exists is that in a mortgage loan, time is often of the essence,” Stanton says. “We are able to expedite the process. By law, the bureaus have up to 30 days to conduct an investigation and determine whether or not the dispute is correct. That often is too long for a mortgage lender or borrower to wait.” Using Bureau Direct, a lender such as WCU contacts Info1 and alerts them the Visa Card shown on Joe Member’s credit report as delinquent does not belong to him. Wescom also indicates they have a letter from Visa confirming the delinquency report was in error. Wescom faxes the letter to Info1. Info1 contacts Visa, verifies the information, and forwards that letter to one, two or all three major credit bureaus. The bureaus then expedite correcting their files. Within 24 to 72 hours, the bureaus report back to Info1 advising them Joe Member’s file has been corrected and the credit score will be recalculated based on the revised file. The bureaus charge a fee for this speedy service, and the lender can’t pass that fee on to the borrower. “It’s a financial and time decision for the lender,” Stanton says. “If they can wait, the borrower can make that correction. It’s important to note that if the borrower is currently disputing the information, there’s nothing we can do. “For example, we just had a case where we were contacting Experian and Equifax. We had information from the creditor saying the delinquencies had been reported in error and should be removed. Even with that letter, we had to wait until the time for resolving the borrower’s dispute had passed before they could look at our information.” If you’re a loan officer trying to help a member with a credit problem, Stanton has some advice. “One of the biggest mistakes is to suggest they close their unused credit cards. Say a person has five credit cards, each with a $2,000 credit limit. That borrower has $10,000 worth of available credit. If they only use one of their credit cards, and that one is charged up to $1,500, that’s $1,500 of their $10,000 credit limit. That’s wonderful,” he says. “With a credit score, closing those other four cards is one of the worst things you could do. Suddenly it would appear they have $2,000 of available credit and have used $1,500. They’re 75 percent maxed out. A huge red flat goes up,” Stanton says. Credit Technologies Inc., Novi, Mich., also offers a rapid rescoring product called Score Express that can provide a corrected score in 72 hours. Thomas Conwell, the president and founder, says rapid rescoring is a growing trend, with Score Express volume as an example growing 300 to 400% a year. He explains the key to any rapid rescoring program is analyzing the credit data itself. Credit scores are generated by an algorithm, a scoring formula. There’s a common misconception that if a borrower pays off a debt, the credit score will improve. “That’s not necessarily the case, especially if there are other negative items in the file. We’ve amassed a great deal of data. We can analyze a file and with some degree of accuracy provide a loan officer with an idea of what exactly would work and to what degree,” Conwell says. It may be a situation where a member faces collection efforts from a couple creditors. The member needs to take care of those debts, then allow the account to age. Six months or a year from now, those collections will have less impact on the member’s credit score. Based on a Score Express analysis, a lender can determine whether it is worthwhile to try and correct erroneous information. Even a corrected file may not yield a credit score that reaches the lender’s approval standards. “There is no magic bullet,” Conwell emphasizes. -</p> <p>[email protected]</p>