National Association of Responsible LO's

The three repositories- Transunion, Equifax and Experian each offer their own statistical models for credit scores. Unless you've worked in the credit reporting industry, or are closely affiliated with the process, the scoring system may seem unusual.

I've seen credit scores 100 points apart from each other and I've seen scores where two repositories were exactly the same and the third was far lower. Regardless of how the scoring is done, it's seems like a good system overall.

Mortgage companies understand the variances in the score models, and generally use the middle of the three. I think this is a sensible safeguard while offering the consumer wiggle room.

So, Whether the borrower is looking for a home purchase loan, mortgage refinance loan, real estate investment loan, FHA loan, VA loan, student loan or auto loan, credit scores are viewed in essentially the same manner. Credit scores are quick to obtain, and are a reliable analysis tool for the vendor.
Notwithstanding credit issues due to a hardship from career or medical, generally the rule holds- the lower the credit score the more unreliable the person is.

Now, what makes a good credit score? Let's quickly list the basics that everyone should know:

* Paying your bills on time
* Having a handful of established credit lines older than 24 months
* No liens
* No judgments
* No adverse reporting
What makes a poor credit score? Obviously, the opposite of the above and more.

One little known feature that causes poor scores, is High credit balances. A borrower may be given a credit line of $10,000, choosing to use the entire amount. Anything above 50% of the limit can be reason for the agencies to ding someone’s credit score. Conversely, keeping the balance below 50% of the limit would be a positive.

Many of the negative impacts are a result of borrowers liberally "testing" the limits of credit. Some common causes of low credit scores arise due to; simply not paying or not paying due to a dispute, maxing out credit lines, opening too many lines or making too many inquiries. Most of these characteristics imply that the borrower is loose with credit, and or shows a imbalanced regard for commitments.

Borrowers wishing to increase their credit scores need to be disciplined, ethical and moderate in their credit usage. The opposite situation of not seeking credit, as with an earlier era, can have the same impact on credit scores.

See also my article Part I Credit

When a consumer applies for credit, most businesses such as auto dealers or mortgage companies can quickly and easily retrieve a suprisingly large amount of personal data.

Basically, a government license gives the three big repositories the authority to gather more personal information than the public should feel comfortable with. Recently, there has been many complaints about identity theft when all along the three big credit agencies- Equifax, Transunion and Experian, send personal information through a multitude of unsecure channels.

Anyone with access to the credit reporting software in their organization, can dig up your personal data. All one needs is your name, address and social security number. Theoretically the requestor is supposed to have a written authorization but in most cases does not. Authorizations may also be verbal (Imagine that).

How it works?: The retailer pulls a borrowers credit information from any number of credit information sub-merchants, which in turn directly communicate with the big three to gather the needed data. There exists a giant industry full of these little credit merchants, and the competition is fierce. Since the competition is so fierce, many of the information providers prefer to sign up as many clients as possible with little consideration for security. There are basic requirements for the person or entity initiating the credit vendor agreement, but from that point the security is lost. The person signing the agreement is rarely the only individual pulling credit reports. Almost anyone in the chain can begin pulling reports.

With one of these credit reports someone can find out: employment information, date of birth, past residences, existing open credit lines and much more.

A mortgage company usually pulls a borrowers credit using whats called a Tri-Merge report. This means that the pulling entity wants all data and scores from the three main agencies simultaneously. The alternative would be a single merge wherein the pulling entity requests a score from one of the repositories, usually Transunion due to TU's lower more conservative score model.

You would think, with all this sensitive data transfer, there would be very strict standards for pulling credit. Unfortunetly there are no standards other than the willingness to sign up and pay the bill.

Who's pulling your credit?

In part two we'll discuss what makes a good credit score.

Title insurance is a mandatory component of loans that involve a lender. Lenders require borrowers to obtain a title insurance policy on the lenders behalf- to cover the lender, in case of errors in past title transfers, easements and liens.

Title insurance is unlike other insurance, in that title insurance covers problems with what may have transpired in the past. If you buy auto or home insurance, you are requesting protection for possible future mishaps. With title insurance the policy covers missteps in the chain of title going back from the date you close.

There are many title companies across the country and most are very large and unheard of. In most states, title companies are regulated by that states department of insurance. Title insurance premiums are not cheap. A $500,000. home may require the buyer to pay $1500. for a title insurance policy, depending on the state.

Whether you are arranging a commercial real estate loan; refinancing your home mortgage loan, taking a real estate investment loan or a home purchase loan, you will be required to obtain a real estate title insurance policy.
Generally the real estate property buyer is not the one that obtains the policy. This is usually done through the closing agent for the real estate transaction. The closing agent may be an attorney, escrow company or the title company itself. Some real estate broker direct which company is to get the title policy business. Property buyers can shop title policies but never do.

Let's say Jim owned a little piece of land in Oklahoma- not a big parcel but something nevertheless. He was gambling with some friends one night and ran out of cash. On one of the hands Jim puts up a deed for the land, and lost. Sue, the winner of the hand places the deed in the side pocket of her gambling purse, goes home and puts the purse away forgetting about the deed for six months. Jim has recently gone broke because of his gambling habit, decides to sell his land and leave town. One day Sue comes across the deed and acts on it. Sue finds out the land is sold to a new owner, finds and presents the new owner with the deed. The new owners review their title policy and find out they are covered for unrecorded liens. The new owners give Sue the name of the title company and ask her to contact them directly. The title company, in this situation may be liable for the claim.

Most title companies, like most insurance companies, have written exceptions into their policies. When a buyer purchases a title policy they will be given the terms and exceptions in the "preliminary policy". Suffice it to say no one reads their prelim and the title companies know this. Banks require title insurance policies because it's a small additional safety measure and the bank isn't the one paying for the policy anyway.

The insurance industry strikes again with the help of wise and thoughtful insurance regulation division of your state. Are you really covered by the title insurance policy? Take a look at yours and find out what the exceptions are. You may find out that most of the issues that can arise have exceptions to them. Yes, title insurance companies encounter litigation, but you'd be surprised to find out how few transactions ever go to court.