New Alert Will Highlight The Impact Of Credit Scores On Mortgage Rates

Starting Jan. 1 next year, mortgage lenders will be required to give borrowers credit score alerts on how their credit scores might be preventing them from getting good mortgage rates.

The intent of the credit score alert is to warn mortgage borrowers about the impact of their FICO scores on mortgage rates and give them a chance to improve their credit or possibly back out of the home loan.

The reality is that the credit alert will probably be just another government-mandated piece of paperwork lost in the large stack of documents that borrowers robotically sign with eyes glazed over.

Instead of relying on a government-required document, mortgage borrowers should check their credit reports before shopping for mortgages rates. To improve their credit scores, borrowers should correct any mistakes and pay down credit card loans but leave the accounts open since larger credit lines relative to debt used is better for credit. How to improve your credit score.

Regardless of government regulations, reputable mortgage lenders typically warn borrowers of credit score issues and, if possible, try to work with borrowers to improve their scores. That’s why working with an experienced, consumer-focused mortgage lender is important.

Media coverage indicates a lackluster reception for the new requirement. The Washington Post quoted Ed Mierzwinski of the U.S Public Interest Research Group as saying the form is “just another disappointing generic disclosure.”

The Federal Reserve and the Federal Trade Commission, agencies that created the rule, “chocked the life out of this promising consumer reform,” he told the Post.

The credit reporting industry also seems unimpressed. The rule “seems to be a very watered-down version of the intent of Congress back in 2003,” Terry W. Clemans of the National Credit Reporting Association told the Post.

Lenders have some leeway in devising credit alerts, but the forms will probably show home buyers and homeowners refinancing their current mortgages how their score compares to other mortgage applicants, any significant factors that drive down their score, a notice that they have the right to challenge mistakes they find on credit reports, and contact information of the three national credit bureaus. Borrowers might also see something on the methodology used to compute their credit scores.