February 5th, 2009 3:20 PM by Dan Marchiando
The decision process that occurs at the offices of mortgage lenders has become more and more computerized in the past 10 years or so, just like so many aspects of our life today. This trend has allowed mortgage lenders and other industries that have leveraged technology, to make better and faster decisions, sometimes at prices less than were possible in the past. Credit reports themselves are a great example of technology making a product cheaper. Credit reports in the early '90s used to cost about $35, but now cost as little as $10. Credit decisions that used to take weeks to analyze, in many cases can now can be done in a matter of minutes.
Mortgage lenders are not the only ones checking your credit
You probably knew by now that mortgage lenders rely on credit scores and credit reports. But did you know that credit card companies, insurance companies, utility companies, and employers also rely on credit scores? A credit score could make the difference between being offered a 14% interest rate or a 21% interest rate on a credit card. Insurance companies use scores to predict the likelihood that someone will file an insurance claim, figuring that someone in difficult financial straits is more likely to file an insurance claim. Utility companies use scores to decide whether to require an up-front deposit on new services. And employers look at credit scores as a measure of trustworthiness—perhaps steering clear of candidates who might be distracted by personal financial problems. A good credit score may indicate to an employer that a job candidate can manage finances and work within budgets; which are required skills in many fields.
Credit reports are produced by companies that tap into the data that is stored by the Big Three credit agencies. These companies organize the data into (somewhat) readable reports, in many cases combining the information from all three agencies into a single summary report. 2004 was a good year for consumers, as government legislation required the Big Three credit agencies to make free credit reports available to consumers once a year.
Good Reasons to Watch Credit
? The good news, as you can see from the above chart is that the majority of people are already doing just fine managing their credit.
? Good credit and good scores can save money on mortgages, car loans & leases, and credit card rates.
? Good credit can streamline the lending process, allowing borrowers to dig up less documentation.
? Good credit can make insurance more available and cheaper.
? Good credit can make getting a job or promotion easier.
? A lot of reports have errors, so it pays to stay on top of them while they are fresh, and get them corrected ASAP. The agencies don't correct errors unless they are informed of the error, and asked to investigate and correct them.
? It can frankly be challenging, and take a fair amount of time to get errors corrected, so it pays to allow plenty of time to correct errors before applying for a new loan.
Next month I'll discuss what goes into a credit report and credit scores.
Thanks for your interest, Dan