Poor credit scores don't just cost consumers opportunities to borrow for a dream house, car or another major purchase.
Imagine spending $78,688 in interest — the spread separating borrowers with the best credits scores from those with the worst over the life of a 30-year fixed-rate mortgage of $220,000. That was the message for first-time home buyers from Consumer Credit Counseling Service of Southern Oregon at an April event in Medford.
Translating credit scores into dollar signs is just one lesson CCC has for clients. They're also learning that home-buying experiences of family and friends are no longer valid in the new housing landscape.
"Things are more stringent than they had been during the 'loosey-goosey' time," says Linda Cade, CCC's housing director.
Cade is referring to the real estate frenzy of 2005 and 2006 when lenders relaxed some standards to qualify more prospective buyers. Now credit scores have returned to a place of prominence for borrowers, along with less risky debt-to-income ratios.
"Issuing credit is always in a state of flux," Cade says.
The type of information contained in a credit report, however, is fairly constant. Credit bureaus link a person with credit companies, individual accounts, late payments and legal action, among other transactions, as well as identifying who has reviewed the person's credit. Details not only differ between the three bureaus — Experian, Equifax and TransUnion — they can be outright incorrect, industry experts say.
"Half the time, we see that credit reports have some inaccuracies in them," says John Mafrici, owner of Medford's Park Place Mortgage and director of the Oregon Association of Mortgage Professionals.
Those errors can mean the difference between a score that scrapes the bare minimum for loan qualification or one that awards borrowers favorable interest rates. Fortunately, CCC and mortgage brokers like Mafrici can help clients remedy reporting mistakes and polish up their overall credit scores.
"We help a lot of people with their credit and even make their credit better," says Mafrici.
He vouches for a little-known service known as "rapid rescore." If the consumer can prove a credit-report item is in error, they can obtain a new report in a week or less for a fee of about $100 to $200, Mafrici says. The process allows borrowers to meet closing-date deadlines and lock in the best interest rates, he adds.
"It actually made the difference in them getting the house they wanted," he says, referring to clients who recently signed on a bank-owned property in east Medford.
The government-backed loans that about half his clients are working to obtain permit lower scores than corporate lending institutions, Mafrici says. Yet a score in the mid-700s is worth working for, Cade says, and will qualify most borrowers for the best interest rates lenders can offer. Most CCC clients are mortgage-ready within a year, she adds.
"They realize now that they need to prepare themselves for the future," Cade says. "They want to nail it."
To easily calculate one's mortgage payments and find other debt-management tools, Cade recommends the free online service www.bankrate.com. The Web site also posts consumer articles on how to improve credit scores and obtain credit.