The homebuying process is a wake up call to many consumers about the importance of a good credit history and credit score

Future home buyers are concerned about their credit and its impact on obtaining a loan, according to a national survey by Experian

A national survey by Experian about homebuying and credit found that many future home buyers, especially first time buyers, do not feel confident about their credit score status. In fact, 34 percent of future buyers say their credit score might hurt their ability to purchase a home and 45 percent have delayed a purchase to improve their credit score.

"Your credit profile is one of the factors that can have a substantial impact on securing a home loan because it is used by lenders as an indicator of your financial health," said Rod Griffin, director of Public Education at Experian. "Consumers planning to purchase a home should check their credit scores and reports to see where they stand. From there they can develop a financial plan so they are in the best place to try to secure the loan they desire."


Many future homebuyers are taking action to improve their credit profile. Almost 70 percent of survey respondents are paying their bills on time and 60 percent are paying off debt. In addition, 28 percent of future homebuyers surveyed are keeping balances low on credit cards and 15 percent are taking steps to protect their credit information from identity theft and fraud.

"It is important to take steps early in the homebuying process to allow time to make changes and have those changes be reflected on your credit score," Griffin explained. "This requires ongoing tracking so it's recommended that consumers utilize a product such as Experian Credit TrackerSM, which not only offers access to an Experian credit report and FICO® Score but many educational resources."

Unfortunately, low credit scores have led some homebuyers to delay or completely forego a home purchase, with one in five reporting that they were likely to opt out of the loan process or purchasing a home all together for the next five to 10 years. Of those deciding to simply delay a home purchase, 45 percent reported the delay was made in order to secure better interest rates.

Other key findings:

• Thirty-five percent of future buyers said they do not know what steps to take to qualify for a larger loan
• Twenty-nine percent of consumers surveyed would purchase a more expensive home if they had better credit and could qualify for a larger loan 
• Three out of four future buyers are not pre-approved for a home loan

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Borrowers with Low Credit Scores Found it Easier to Get a Home Loan in 2014

Mortgage lending standards loosened in 2014, making it easier for borrowers with low credit scores to get a mortgage, but borrowers with low down payments saw financing options begin to tighten in the fourth quarter, according to the quarterly Zillow® Mortgage Access Index (ZMAI). Overall, it was still easier for home buyers to access credit in 2014 compared with the prior year.

The Index, which currently stands at 69.4, dropped 2.1 points from the third to the fourth quarter, but is up more than 18 points from the fourth quarter of 2013. An Index reading of 100 would indicate that credit has returned to pre-housing bubble levels.

In 2014, lenders lowered their credit score requirements for conventional loans, opening the door to a new subset of borrowers - those with scores of less than 680. Borrowers who were previously only eligible for an FHA loan due to their low credit scores are now more likely to get a less expensive conventional loan with private mortgage insurance.  At the end of 2014, it was easier for borrowers with low credit scores to get conventional loans than it had been since 2008.

However, in the fourth quarter of 2014 lenders began to offer fewer financing options to borrowers with low down payments. This move forced borrowers who may have previously been able to get a conventional mortgage with a low down payment back to FHA loans. Additionally, the rate of creative financing like second mortgages or piggyback loans, which are typically used to avoid paying mortgage insurance, fell in the quarter.

"After several years of rapidly increasing access to home loans, lenders are taking a pause," said Dr. Stan Humphries, Zillow chief economist. "With the mini-boomlet in refinance activity late last year, perhaps there was less business imperative for banks to attract new customers with looser lending. Don't expect this trend to continue though. Instead, credit access should continue its slow normalization, although it's doubtful it will ever return fully to where it was pre-bubble. The new normal likely lies somewhere between current conditions and those of the early 2000s."

Variables Used to Calculate the ZMAI	Q4 2013	Q3 2014	Q4 2014
Private Mortgage Insurance (PMI) Percentage i	43.9%	47.3%	45.7%
Second Mortgage Prevalenceii	8.6%	12.4%	12.0%
Debt-to-income ratioiii	44%	44%	44%
Credit Scoreiv	682	673	674
Non-conforming Loansv	8.6%	9.8%	9.6%
Mortgage Rate Spread (percentage points)vi	1.42	1.64	1.69
Zillow Mortgage Quotesvii	35%	53%	53%
Zillow Mortgage Access Indexviii	51.1	71.5	69.4

Experian's latest analysis uncovers how the addition of rental payment data to credit files can help financially excluded consumers gain access to traditional financial services

COSTA MESA, Calif.-- Experian®, the leading global information services company, today announced itsrecent report on the impact of positive rent reporting on subsidized housing residents. Experian was the first credit reporting agency to incorporate on-time rental payments to its database. To show the value of adding alternative data to credit files, Experian conducted an analysis to examine how rental tradelines impact credit file thickness, risk segment migration, credit scores and the ability to score previously unscoreable residents.

"'Financial exclusion' is a term that describes the lack of access to basic financial services. Being denied the opportunity to have low-cost loans or even a bank account is a reality for many Americans, and they are forced into using alternative services to conduct simple transactions," said Brannan Johnston, vice president and managing director, Experian RentBureau®. "Adding on-time rental payments to credit files may help those who operate primarily on a cash basis to integrate into the banking system and establish a credit history that they can leverage to receive more affordable credit and improve their economic well-being."

Additional findings from the Credit for Renting whitepaper confirm:

• The average VantageScore® 3.0 score change for previously scoreable participants in the study was an increase of 29 points
• 95 percent of study participants experienced a score increase or no score change with subprime and nonprime residents receiving the greatest positive score impact
• 19 percent of study participants previously considered subprime migrated to at least one higher (less risky) risk segment, typically yielding more affordable credit and additional credit opportunities 
• 23 percent of thin-file residents migrated to the thick-file category, potentially signaling to a lender the ability to manage multiple credit obligations
• 97 percent of the previously no-hit (and credit unscoreable) residents fell in one of the two least risky risk segments with the addition of the paid-as-agreed rental tradelines

"Consumer financing rapidly changed during the economic upheaval, and regulatory changes forced lenders to tighten the standards for the underwriting process. This excluded many Americans from the opportunity to attain credit due to a limited or no credit history," said Genevieve Juillard, president of Experian Consumer Information Services. "For the last decade, Experian has advocated for full-file reporting and invested in new sources of data outside the traditional sets, such as Experian RentBureau, to help expand credit files. Residents who pay their rent on time month after month should be rewarded and not overlooked simply because they rent instead of own the place they call home."

To conduct the analysis, Experian RentBureau gathered rental payment data from the Experian RentBureau database which is comprised of both positive and negative rental payment data.  Experian incorporates the on-time rental payment data reported to Experian RentBureau into Experian credit reports. Nearly 20,000 leases, as reported by property management companies to Experian RentBureau, were found that met the desired criteria, including the receipt of housing subsidies on the lease and positive lease payment behavior. Subsidized leases with negative rental payment history specifically were excluded from the analysis. The addition of these leases to the Experian credit database then was simulated.

A complimentary download of the full report is available here: http://ex.pn/1uET659

Experian consumer education resources For more than 20 years, Experian has been committed to helping consumers build a positive credit history by providing products and services that help consumers manage their credit reports and credit scores better, so they can get the credit they need when they need it.

Consumers can connect with Experian and learn more about credit in other ways, including by:

• Joining the #CreditChat, hosted by @Experian_US on Twitter with financial experts and consumers every Wednesday at 3 p.m. Eastern time
• Visiting Experian's help site for answers to common questions, advice and education about consumer credit
• Asking credit questions on Experian's Facebook page at https://Facebook.com/ExperianUS

For renters interested in building credit history through rental payments, 
please visit www.experian.com/buildcredithistory.

Mortgages in Brief - Understand the Role of Credit in Purchasing Your Home

Understanding the role your credit plays in the purchase of your home is perhaps the most confusing aspect of the entire process. This short video helps explains why credit is important and how you can get a free copy of your credit report.

Nearly a Quarter of Americans Have Never Checked Their Credit Report, Says New FindLaw.com Survey

EAGAN, Minn., April 23, 2013 /PRNewswire/ -- Despite its importance in everything from obtaining a credit card or mortgage to employment background checks, nearly a quarter of Americans have never checked their credit report, according to a new survey by FindLaw.com, the most popular legal information website.

Twenty-two percent of Americans have never checked their credit report to verify the accuracy of the information, even though by law, credit reporting agencies are required to provide free copies upon request.

Women are more likely than men to check their credit reports. Twenty-five percent of men have never checked their credit reports, compared with only 18 percent of women.

People with more income are somewhat more likely to check their reports. However, a significant percentage of people even at the highest income levels say they have never checked their credit reports, including 14 percent of people with household incomes of $75,000 a year or more.

A credit report is an overview of how much debt a person currently has, as well as whether he or she has a history of making debt payments on time. It also contains personal information such as recent home addresses, employers, and bankruptcies and court judgments.

Credit reports are used by lending institutions, such as mortgage and credit card companies, as part of their decision-making on whether to grant credit. In addition, in most states, credit reports can be used as part of employment background checks. Credit reports are different from credit scores, which are numerical values applied by the credit reporting agencies as a measure of credit risk.

Under the Fair and Accurate Credit Transactions Act, all Americans are entitled to a free credit report from each of the three major credit reporting agencies once every 12 months. Federal law also sets requirements for resolving disputes involving the accuracy of information in a person's credit report.

"The accuracy of your credit report can have a major impact on your finances, and even your chances of obtaining a job," saidStephanie Rahlfs , an attorney and editor with FindLaw.com. "Inaccuracies in information such as late payments or defaults could play a major role in whether you can obtain a home mortgage, credit card, car loan and other types of debt, and how favorable your terms will be, such as interest rates. Credit reports are increasingly used in background checks, and could determine whether you are offered a job or rental housing."

Free, helpful information on credit reports and other aspects of consumer credit can be found online, including at FindLaw.com's Financial Consumer Protection site: http://consumer.findlaw.com/credit-banking-finance/

Credit Repair: Getting Your Credit in Shape Before Shopping for a New Home

In the last few months, I’ve run across a number of would-be home buyers who have weathered the worse of the economy and are now on the road to recovery and ready to move on to their next adventure. Often, unfortunately, their credit scores haven’t caught up to their new optimism when they knock on my door. Bad credit, no credit and errors in their credit reports wreak havoc on a client’s ability to secure a home mortgage.

In fact, a lot of clients are unpleasantly surprised at what their credit reports look like - even when they’ve diligently monitored their scores through various for-profit services. Those services only give its customers "soft" credit pulls or inquiries - a top level look at their credit - rather than a "hard" credit pull which is used in determining credit worthiness. A “hard” credit pull can be significantly different from a “soft” inquiry. A soft credit pull, which does not impact your credit score, can be done by any number of organizations for any number of reasons - except for the purpose of extending credit.

A hard credit pull, which does impact your score, occurs when you seek credit. It is usually more detailed and contains a longer, more detailed history than a soft pull. A hard credit report is more likely to show bad credit that the client thought had long since rolled off. It also can include erroneous entries that weren't seen on a soft pull.

I’ve also had clients with no late payments in total shock when they find that their scores aren’t where they think they should be. The most common reason is that their revolving credit cards are maxed out. Though they’re never late, they owe more than 30 percent of their credit limit.

To further complicate matters, different kinds of credits count differently toward a mortgage. Entries related to housing have more weight in obtaining - or not obtaining a mortgage - than other forms of credit.

At this point, clients are spinning. “How do I fix it?” they ask. And usually, they don’t like the answer: “It depends.” (Lots of eye rolls at this point.) But that’s the truth: the fix depends on the problem.

If your credit cards are over 30 percent of the your limit, the fix is to pay down the balance. If you’re late or behind, get caught up - and stay that way.

If you don’t have any credit, you need to open a couple of credit cards. The easiest card to get is a secured card. What to look for in a secured credit card is a whole other post, but here is a good place to start.

If your credit report has a lot of negatives entries - old charge offs, bankruptcy, foreclosures, blatant errors and the like - the fix is more complicated. At that point, you most likely need the help of a credit repair expert.

By expert, I don’t mean calling the number posted a telephone phone pole by unnamed company promising to “legally” fix your credit. You don’t now who you’re really dealing with. I have several reputable companies I can refer you to, and your lender should have some referrals for you too. A reputable credit repair company will outline a course of action that likely includes a combination of removing negative credit and adding positive credit.

How the negative credit is removed goes beyond the template “dispute” letter, and that’s where the expert part comes in. An experienced agency has a working knowledge of how the credit reporting industry works - preferably knowledge gained from working inside that system. The agency should have a deep understanding of your rights as a credit consumer and how to effectively excise those rights on your behalf.

You also want to look for a credit repair company that educates you on how to maximize your score in the future and how to handle your finances. And you’re want a company that is upfront in all their fees.

Cleaning up your credit likely will require you to follow through on your end as well - staying current in revolving credit payments, opening positive lines of credit, or paying down balances - whatever your credit adviser recommends.

Successful credit repair is neither cheap nor easy nor quick. At best is takes 30 days, but realistically it can take 4-5 months or longer. The cost is in the ballpark of $500 and up, depending on the complexity of your individual plan. You’ll also want to factor in catching up on bills and/or opening up positive trade lines.

When should you start credit repair? As soon as you’ve made the decision to purchase a home - even if the purchase is still months away.

More questions or need a referral to a reputable credit repair company? Drop me an email! Let’s start your journey to your new home!