Failure to check these things out can break a deal before it hits the Processor’s desk so it’s important to know that the Loan Officer did his or her due diligence in pre-qualifying the buyer.
Disputed accounts
When an account is disputed, any negative or positive impact on the score is removed. That means that the score given by the credit bureau may not be the actual score. Why? Because the applicant is stating that the account is inaccurate and therefore the bureau is required to keep the negative or positive account out of the credit score.
Ever wonder why the credit scores from those online credit score companies are different? One reason is because those companies don’t take disputed accounts into consideration.
Some people use credit repair companies to fix their credit and the repair company will dispute all the accounts, whether good or bad. If a good account is disputed, the good points are not calculated into the score.
Not all bad credit affects the score and disputing a bad account that is over a year old is a bad idea. Why? A collection account that has not reported in over a year is not affecting the score. If a dispute is removed, the account will show a new date of activity, bringing the collection account to a new status and negatively affecting the score. If the collection account had been left alone, it would not have affected the score in the first place.
Any disputed accounts must be removed from the credit bureaus prior to moving forward with a pre-qualification. Once the dispute is removed, then the Loan Officer can see if anything needs to be done to help qualify the Applicant.
Social Security Mismatches
Recently, I was told about a new scam that involves selling social security numbers of deceased persons that haven’t yet been reported to the social security administration office. The stolen number has credit information loaded with a good score. The credit report may not show that the number has been stolen, which is why the Loan Officer has to look for social security number mismatches. If the social security number mismatches the name on the bureau, it has us believe that the Applicant is either lying about the number given, that someone stole the identity of the Applicant or the Applicant purposely changed the number for reasons of marriage, identity theft or other. Either way, proof of identity from the Applicant must be obtained and a letter from the social security administration validating the number to the name, must be provided. Many companies don't know to look at the number mismatch, don't bother to educate its employees about it, don’t have access to a full report to see mismatches or are fraudulently involved in the scam to borrow money from banks.
Public Records
Public Records tells the Loan Officer if the Applicant has any bankruptcies, judgments (resulting from unpaid collections) or tax liens, which must be paid off prior to or at closing. If the public record is over 1 year old, it is no longer affecting the score. However, because it must be paid off, doing so may reactivate the old account making it a new public record with a zero balance. This will negatively affect the score. The best thing to do is to pay this off at closing if the last reporting date is over a year old. If it is less than a year old, ask the Loan Officer if paying it off during the loan process is okay. In most cases, the account is paid off, but it may take the government agencies (city, county or state) months or years to update the credit bureau. Sometimes, the government agency will report the paid account to only 1 of the 3 bureaus. It is important to hold on to all documentation forever, in order to show the lender that the account was paid in full.
Alerts, Name and Date of Birth Mismatches
Lastly, it’s important to look at any alerts on the report that may state that there was a case of identity theft, or look for mismatches of the name or date of birth. Name mismatches happen from typos, people who recently married and had his/her name changed or identity theft. Date of birth mismatches happen from typos or identity theft. An example may be when a child has the same name of his father and the father, whose credit is bad, uses his son’s credit in a fraudulent way. A police report would need to be filed for reasons of identity theft. Unfortunately, children usually won’t file a report against a family member. For this reason, it’s important to look at the age of the Applicant and determine if the collection account was open before the Applicant’s 18th birthday. If this is the case, then a dispute should be entered to determine the validity of the account or the lender may take it upon themselves to validate the account. The latter costs money.
It is illegal for a mortgage company to collect upfront, out of pocket fees from an Applicant for credit validation. Those fees must be collected at closing, so the mortgage company may not be willing to spend the money with hopes of closing the loan and getting paid back.
Once all this information is reviewed and the disputes are removed, then the Loan Officer should be able to decide if the Applicant qualifies for a loan based on the program parameters.
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