I just recently completed a home loan transaction in mid June which almost did not close because of a change that took place on the credit report.   Here is what happened.

The borrower was approved and ready to move forward on the purchase of a new home.   The closing was 4 months away, so we did not lock the loan.   We also knew that the credit report and other supporting documentation would expire after 90 days and that we would have to re-pull credit and get updated documents before the closing.

About 3 weeks before the loan was to close, I pulled my client’s credit again because I presumed the credit score would have increased since the borrower had paid down some obligations thus improving her credit score. Much to my surprise, the credit score had dropped 74 points; 699 to a 625.

The borrower had made what she thought was a final payment on a department store credit card.  As a result she never received another statement from the company.  Based on the way this credit card calculated interest, after paying the amount on the statement, there was still an $8.27 balance.    The credit card company sent another statement, but for some reason the statement was returned back to the credit card company.   The borrower never received any additional correspondence and as a result, her credit report showed a 30 day and 60 day late payment on her credit report causing the score to drop the 74 points. 

In this case, we were fortunate that she was able to contact the credit card company and they agreed that the error was not her fault. They issued a letter stating that all derogatory information which was reported to the credit reporting agencies would be removed.  We were also fortunate that the service we use for pulling credit has a rapid rescore program that  will work with the credit reporting agencies to correct problems such as this one.   We had to provide a copy of the letter along with a few pages of documents and $90 to get the problem corrected.    The result was that her score went right back to where it was before the problem.    I am of the opinion that her score would have broken the 700 mark if this problem had not occurred.   The difference in going from a 699 to a 700 was a 1% difference in interest rate on the 2nd mortgage.

This situation caused the borrower a lot of stress because if this could have not been corrected, she would have not been able to close on the purchase of this home with a score of 625.    Her interest rate would have been so high that her income would not have been enough to support an affordable payment. Additionally, you are on pins and needles for a couple of weeks while the review takes place to have the score corrected.   This also put me and my company in a tough spot because we needed to change lenders and could not submit a loan application to the lender without the updated credit report.   We had basically just less than 2 weeks to get this loan application approved by the lender……fortunately, we got it done the day before closing.

Most people do not check their credit report on a regular basis.   About the only time they see their credit report is when applying for a home loan or trying to buy a car.   So here is what you should do to ensure that your credit report is in good standing.

Check your credit report for free once a year at www.annualcreditreport.com  - view all 3 reporting agencies
If you know you’re going to be buying a car or home, check your reports again 2-3 months prior  - (may be a cost)  When you pay off a bill, call in advance to make sure the amount shown is the final balance
When you pay off a bill, you should always receive a statement showing a zero balance, if not call them
Always deal with any collection notices immediately  - don’t ignore them as they will bring your score down

You can also subscribe to a credit monitoring service.   They are now widely advertised on radio and TV, but the one's I personally prefer are those offered directly by the 3 credit reporting agencies:  TransUnion, Equifax, and Experian.  For a nominal monthly fee, they will provide you with immediate notice once something negative has occurred on one or all three of your credit reports.

If you discover an error on your report, call the company in question and then dispute the error with the agencies.   This can be done for free and it could take 30-60 days to get the situation resolved.  In most cases, you will need documentation which proves the error has either been fixed or is not yours.