HOMEBUYERS 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.
Mortgage applicants 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. Now, residents of only a handful of states have that right.
Like an annual medical checkup, ordering your credit files once a year will allow you to spot any errors or omissions that could raise the mortgage rate and fees that lenders quote you on your next application. Research by the Consumer Federation of America and the National Credit Reporting Association found that millions of Americans are at risk of being charged higher fees by lenders solely because of unseen misinformation buried in their credit reports.
Other consumers' credit files are incomplete - missing key data including records of positive, on-time payments - because their lenders intentionally withheld it from the credit bureaus. They face higher rates and fees as a direct 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 homebuyers 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-quarter 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 the data in your credit files is bad. They assume your records are correct and rate you as a credit risk accordingly. Higher-risk borrowers pay more.
