In society today, credit affects many aspects of life. Whether you are applying for a job, buying a car, switching phone or cable services, shopping for car insurance, or shopping for a mortgage, you may be disqualified or pay higher rates based on your credit score.
Credit enables you to borrow money with a promise to pay it back. Typically, when you borrow money on credit, you are required to pay back the amount you borrowed (the principal) along with a percentage of interest that goes to the lender, usually a bank. As you borrow money on credit over your lifetime, you develop a credit report. Most people are familiar with credit reporting…good and bad. However, most people are confused as to their ability to control their credit. A common misconception is if you pay on time, you have good credit. Not necessarily true, according to Chris Lowrey, a loan officer with The Mortgage Store. “Maintaining good credit involves juggling all avenues of your credit. Your credit score is driven by the number of trade lines, length of credit, derogatories, inquiries, pay history and balances on your credit limits. People also believe that once you make a credit mistake that it haunts you for a long time,” explained Chris Lowrey.
“Credit is a funny thing…If you make a late payment or have a dispute with a medical collection, it is rarely damaging for any length of time. There are easy adjustments that can be made to restore your credit score,” continues Lowrey.
Common sense would dictate that if there are errors or old collections on a credit report, then the bureau that develops the report must be contacted and the correction made. That, too, can be a grave mistake according to B.J. Magnuson, a loan officer with The Mortgage Store. “Many people make the misguided decision of evaluating their own credit. With great intentions, the majority of people attempt to repair their own credit. Fixing the wrong item on a credit report can actually lower your credit score,” according to B.J. “Some items are just best left alone. Others though need to be corrected. The trick is knowing the difference.”
So what does the average person do to maintain a good credit history or repair a damaged one?
“Each person has a unique situation and rarely does advice pass from one person to another. One must seek out someone who has experience reading and evaluating credit reports. We spend a large amount of time educating our customers. Our philosophy is quite old fashion: Customers come first. Always. Even though their mortgage needs may have come and gone, they are our customers for life. We encourage our customers to call or stop in anytime with their questions. We want our customers to thoroughly understand their credit,” explains Magnuson.
Mortgages…What Is Happening?
The mortgage world is turning upside down right now. Investors are in a situation where mortgages are in default at a record high. Borrowers who are used to walking in their bank and receiving the white-glove treatment are now being turned away.
“We all knew this day was coming. Qualifications were too simple. Past credit was too easily overlooked. Debt-to-income tolerance was too high. The truth is the industry was attempting to build bridges without proper support. Just because someone could qualify on paper doesn’t mean they should have been placed in the loan they were requesting,” says Lowrey. “Consumers don’t just need mortgages, they need assistance. Occasionally customers ask for loan amounts that are not suitable for their budget. Consumers often times innocently trust their loan officers and don’t understand they are being placed in a loan that will be adjustable in a short time. If the mortgage payment increases or if an unexpected financial situation arises, the consumer is in trouble with nowhere to turn,” continues Lowrey.
“Although the industry has eliminated many programs, there are wholesale lenders right now trying to prove to the every day consumer they are still there for them and still financially strong. Typically wholesale lenders’ rates are lower than the local banks and their qualifications are more flexible. For a consumer who needs to secure a fixed rate mortgage, or lower their payments by alternate means, there still are solutions,” says Magnuson.
Understanding credit is a complicated task. And, the value society has placed on credit history and credit scores, has created a need for consumer education. It may be difficult, it may be complicated, but if the consumer does not become educated, the consequences could be very expensive.