Beware! A lender may be hiding your glowing payment record

Nation's Housing

Nonreporting keeps competitors in dark

January 30, 2000|By KENNETH R. HARNEY

IF YOU'RE AMONG the millions of Americans whose credit histories aren't quite perfect, answer these two questions: Have you been trying to improve your credit standing by scrupulously paying your mortgage and credit card bills on time every month?

Would you be upset to learn that your solid, on-time payment performance isn't being documented anywhere, and therefore won't help you get a lower interest rate the next time you apply for a home mortgage or an equity loan?

Get ready to be upset.

Federal officials and private-sector credit agencies say the practice of nonreporting of mortgage and credit card payment performances is abusive and widespread. Last week, federal financial regulators issued an advisory to the nation's banks urging them to take defensive steps to guard against the potentially harmful effects of the practice.

Here's what's involved: You might assume that all your major assume that all your major credit transactions - how much you borrowed on your mortgage, how high a limit you've got on your credit card - show up on your credit files. But that's not the case, especially if you're a homeowner with some minor dents in your past payment performances.

That's because some mortgage lenders and credit card companies hide you potential competitors. They no longer report your payment histories to the three national credit reporting bureaus -- Equifax, Experian and Trans Union. They do that, according to federal officials familiar with the practice, to keep other lenders from knowing how solid and profitable your account is. Aggressive lenders routinely surf through credit files electronically to identify and harvest prospects for home refinancings, home equity credit lines, and card offers.

Among the most attractive prospects: people who are paying higher-than-market interest rates on their mortgages because of prior credit problems, but who nonetheless make their payments on time every month. Many of them expect that their on-time payments will help re-establish their credit records and enable them to qualify for lower rates in the future.

But, says Deputy Comptroller of the Currency David Gibbons, that's not necessarily true. Nonreporting of payment performances by some mortgage lenders means their customers "aren't getting a fair shake. They're caught in a self-fulfilling prophecy," says Gibbons--they've started as borrowers with subpar credit, but because their excellent recent performances aren't being reported to the credit bureaus, their files show no improvements.

Gibbons believes the practice of selective nonreporting could have fair-lending implications as well: If statistical studies that minority groups are more likely to carry subpar credit scores than other groups are correct, he says, then minorities-- especially African-Americans and Hispanics -- could he hurt by nonreporting more than other consumers.

Financial regulators decline to identify companies who engage in nonreporting, but they say some are among the largest lenders in the United States. An organization representing 400 consumer lenders, the American Financial Services Association, announced last week that its members have agreed not to withhold borrower information from credit bureaus. Among the companies covered by the pledge are giants like Norwest Financial, GE Capital, and Household International. Last year, Household confirmed that it engaged in selective nonreporting as a defensive measure against competitors.

Last week's advisory letter to banks, issued by the five major financial regulatory agencies, focused on he flip side of the nonreporting problem: the implications for the "safety and soundness" of financial institutions who lend to consumers whose credit flies are incomplete. Banks evaluating loan requests from borrowers who've frequently been late-- but haven't been documented as such because their lender never reports to credit bureaus-- "could inadvertently expose themselves to increased.., risk."

But what about consumers being victimized by the nonreporting trend?

Two thoughts: Periodically get copies of your credit report from the three bureaus and look for missing data.

Second: Did your lender promise or imply that by taking out your current loan and repaying it on time, you could improve your overall credit score in the future? And do you now find that the same lender isn't even sharing information about your on-time performance with the credit bureaus?

Sounds like that could be a false and deceptive trade practice that your state attorney general, or even the Federal Trade Commission, might like to learn about.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

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