Home buyers and mortgage refinancers should be among the major beneficiaries of new legislation reforming the nation's consumer credit rules and practices, approved by the House and Senate just before the Thanksgiving recess. President Bush is expected to sign it into law early next month.
Consumers in all 50 states will be able to request and obtain one free copy per year of their credit reports from each of the three national credit repositories: Equifax, Experian and TransUnion. Currently residents of only a few states have that right. Californians do not.
Ordering your credit files once a year will allow you to spot any errors or omissions that could cause problems, including the hiking of mortgage rate and fees that lenders quote you on your next application. Research by the Consumer Federation of America and the National Credit Reporting Assn. found that millions of Americans were at risk of being charged higher fees by lenders solely because of unseen misinformation buried in their credit reports. Other consumers' credit files were incomplete -- missing key data, including records of positive, on-time payments -- because their lenders intentionally withheld it from the credit bureaus. They faced higher rates and fees as a result.
The new legislation, the Fair and Accurate Credit Transactions Act of 2003, also guarantees you access to the credit scores used to evaluate and price your mortgage application. Though California residents have had the legal right to obtain their scores for more than a year, the vast majority of American home buyers have not.
Another new consumer advance in the bill: mandatory notification whenever your loan application is negatively affected by a "risk-based pricing" system that uses your electronic credit files to come up with your rate quote. Most mortgage applicants have no idea when they are quoted slightly more, say one-fourth of a percentage point to one-half a point above what they deserve, because of erroneous or incomplete information in their credit files. The risk-based pricing software systems used by most mortgage companies have no way of knowing that data in your credit files are bad. They assume your records are correct and rate you as a credit risk accordingly. Higher-risk borrowers pay more.
The legislation also addresses a variety of other consumer credit issues, especially identity theft. When thieves steal identity by obtaining access to your Social Security number and banking records, your credit files often end up pockmarked with erroneous reports of unpaid credit card bills, car loans and retail charge accounts. As a result, your credit scores may plummet enough to make a nightmare out of refinancing or applying for a new mortgage.
Clearing up your files after an identity theft can take months of frustrating calls to credit bureaus and merchants. To help, the new legislation will facilitate the early placement of "fraud alerts" at the national credit repositories by consumers who believe their identity has been stolen. Those alerts, in turn, will instruct banks and other creditors not to open new accounts or extend additional credit to anyone without contacting the consumer directly.
Credit bureaus also will be required to block the reporting of information on individual credit reports tainted by the illegal behavior of identity thieves. The national credit bureaus will be required to share consumers' complaints about identity theft. A call or letter by a consumer alerting one bureau to the existence of an identity theft will be passed along to the other bureaus, allowing them all to put appropriate notations on the consumer's files.
The bottom line for you as a mortgage applicant? For starters, you should know more about what's in your credit files, and you'll be able to do a free annual checkup. You should be better protected against being blindsided by junk in your files that can affect your mortgage applications. You should be better protected against the credit file damages associated with identity theft. And you should have a better chance of getting the home mortgage rate and terms you truly deserve.
Kenneth R. Harney's e-mail address is kharney@win starmail.com. Distributed by Washington Post Writers Group.