No doubt motivated by massive credit data breaches at places like Equifax, Marriott/Starwood, Anthem, Chase, Target, and Citibank--the federal government in late 2018 passed legislation to require the three big Credit Reporting Agencies (CRAs) to provide free Credit Freezes, and more useful Fraud Alerts. The three primary CRAs are Equifax, TransUnion, and Experian. Previously, California law allowed each bureau to charge up to $8 each time you placed a freeze, or removed a freeze; so $24 to place freezes at each of the 3 agencies, and $24 to later remove. It seems likely that most people in the U.S. have been touched by one of the breaches mentioned above. I for example, have relationships with 5 of the 6 mentioned above.
Under the new federal legislation, now when you place a Fraud Alert, it will last for one year instead of just 90 days. It appears they can be renewed every year, and only require a suspicion that you are a victim (who isn’t?). If you can document that you have filed a report for Identity Theft with an agency like the police, then you can ask for an Extended Fraud Alert that lasts for seven years. A Fraud Alert places a warning into your credit report, that tells businesses that check your credit, that they should contact you first before opening a new account. Fraud Alerts are a less aggressive alternative to Credit Freezes, and might be a better option for many people. They are also easier, because if you place a Fraud Alert with any one of the three agencies, that CRA will send your request to the other two, so you do not have to contact all three.
A Credit Freeze restricts new creditors from accessing or pulling your credit report to open a new credit account, thus providing a measure of protection from an identity thief opening an unauthorized account in your name. The Freeze does not restrict your existing credit providers, or collection agencies acting on behalf of those credit providers, from periodically reviewing or updating your credit file.
You can now place a freeze and remove a freeze for free. You can place a Credit Freeze online, by phone, or by mail. If you place the freeze online or by phone with a CRA, it must be effective within one business day. If you request a removal, the CRA must lift within one hour. If your request is by mail, the CRA must place or lift the freeze within three business days. The downside of freezes is that they take more effort to manage, require that you deal with each CRA separately, and require that you plan ahead to un-freeze your credit file, whenever seeking to open new credit accounts.
The CRAs also all offer Credit Locks, which while similar to Freezes, are not regulated by federal law, plus some CRAs charge a monthly subscription fee to use the lock feature. The CRAs have supposedly made the Credit Locks slightly more convenient and quicker than Credit Freezes, in an attempt to make them more attractive. However, locks do not offer the same level of consumer legal protection as the federal law, because instead of having the law behind you, you have a User Agreement (a contract) with the CRA, that was written by the CRA’s attorneys to protect the CRA, and not you.
To place an alert or freeze:
Equifax: (800) 685-1111 or https://www.equifax.com/personal/credit-report-services/
Experian: (888) 397-3742 or www.experian.com/fraud or www.experian.com/freeze
TransUnion: (888) 909-8872 or https://fraud.transunion.com/ or https://freeze.transunion.com
As always, thanks for your interest,
Dan Marchiando, your California Mortgage Broker and Loan Officer
In response to the higher mortgage foreclosure rates being experienced at the start of the most recent Recession, Fannie Mae and Freddie Mac (currently the largest buyers of mortgages) established “Risk-Based Pricing” for Conforming loans. “Price” refers to the “Points” paid by a borrower for a particular interest rate. Before the Recession, a Conforming loan was basically the same price for any borrower with a credit score of 660. But afterwards, Fannie and Freddie both required pricing “add-ons” using a matrix of credit score and loan-to-value percentages. This risk-based pricing is MANDATED by Fannie and Freddie, and is required of ALL lenders originating Conforming loans. So it doesn’t matter where you go to get your Conforming loan—broker, banker or online—all lenders are subject to the same pricing adjustments.
At right is an excerpt from the adjustment matrix for a typical 70-75% loan-to-value loan. As you can see, having a 739 credit score instead of a 740 credit score can add a quarter of a point onto the cost of a loan. Having a 699 score could add one and a quarter points onto the cost of a loan. On a $400,000 loan, this could amount to $1000 or $5000. On a $600,000 it could amount to $1500 or $7500.
Sometimes the interest rate can be increased to cover these add-on points without having to pay them up-front, but of course a higher interest rate just spreads the cost over the life of the loan.
Credit scores are just one factor in pricing a loan. Loan-to-value, property type, and whether the home is owner-occupied or not can also affect pricing. Consumers can’t always just call a lender and say “what’s your rate?” because of all the variables involved. Any reputable lender should be upfront and clear that any quote given is based on an assumption of certain parameters, and some of these parameters aren’t know until a credit report is obtained, and an appraisal is done.
I am here to provide honest, straightforward advice. If I can be of any assistance to you, your friends, or your family, feel free to contact me. I will take care of you and your referrals in the same upfront fashion as I always have.
Thanks for your interest,
Dan Marchiando, your California Mortgage Broker and Loan Officer.