THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: SATURDAY, June 11, 1994 TAG: 9406100605
SECTION: REAL ESTATE WEEKLY PAGE: 04 EDITION: FINAL
SOURCE: By Katie Butler\
DATELINE: 940611 LENGTH: Long
For Hampton Roads residents hoping to buy a home, these can be dreaded words.
{REST} Most lenders require applicants to have a good credit history. That means a history of paying bills - and paying them on time.
A series of late payments can spell trouble a the home buyer. What's worse, because interest rates are low and lenders have plenty of applications, even a few tardy payments may keep an applicant from getting into a home.
But local lenders and credit counselors say credit doesn't have to be a bad word. By budgeting income and expenses, and by preparing for a credit review before sitting down with the realty agent and lender, consumers can help make home-buying a hassle-free process.
Even if their credit history isn't perfect now, lenders and credit counselors say they can rebuild.
``As in all things, time heals,'' says Ray Mattes, vice president of marketing for Retail Merchants Association of Tidewater, a local credit bureau and affiliate of Equifax Credit Reporting System.
Though a credit report includes data for the past seven years, mortgage companies, in general, focus on the last two years of an applicant's credit history, says David Gilbert, president of the Tidewater Mortgage Bankers Association.
``Lenders are looking for consistent credit,'' Gilbert says. Typically, they seek people who pay their bills within 30 days, he says.
The Department of Veterans Affairs, in particular, has tightened its underwriting guidelines, making good credit more important than ever for VA loan applicants, Gilbert says. VA lenders are required to scrutinize applications that show any past-due payments within the last 12 months, he says.
Lenders look for the frequency of late or missed payments, says Doris Eskey, director of Consumer Credit Counseling Service in Norfolk, a non-profit operation designed to help consumers manage their money.
Utility bills are especially important to some lenders, she says. If an applicant cannot afford to pay basic living expenses on time, there may be trouble making the mortgage payments.
Because a good credit history plays such a big role in the mortgage approval process, Gilbert says, potential home buyers should review a copy of their credit report before meeting with their agent and lender.
Credit bureaus will give consumers a copy of their credit report for a small charge - typically about $10. Anyone who has been denied a loan because of a credit problem can request a free copy of the report by contacting the credit bureau within 60 days.
Often, Gilbert says, a family will find their dream home, contract with an agent, meet with a mortgage banker and only then find a problem on the credit report. Sometimes, information on the report is either inaccurate or incomplete, but mortgage applicants can save time and headaches by trying to spot possible errors and fix them ahead of time, he says.
\ Nationally, there are three major credit reporting services, Equifax Credit Reporting System, TRW and Trans Union. Traditionally, each focuses on a different geographical region.
As an Equifax affiliate, Retail Merchants Association of Tidewater has collected data on South Hampton Roads residents since 1903. Today, it has about 1.5 million files on current and former area residents, Mattes says.
Consumers can meet with a bureau counselor for free, he says, to review their report line-by-line. That way, they can understand the information and learn how to contest discrepancies.
The report contains payment data from creditors, including credit card companies, banks, finance companies and department stores. Student loans, collection agency accounts, medical accounts and public records such as bankruptcies are also included.
Payment information is stored and reported for seven years after the last account activity or, for cases of derogatory credit, for seven years after the date of the last infraction. A Chapter 7 bankruptcy, or liquidation, remains on the report for 10 years and a Chapter 13 bankruptcy, or reorganization, remains for seven years.
Errors on a credit report can be fixed, but not always immediately, Eskey says.
To contest information in the report, consumers should fill out a discrepancy form with the proper credit bureau, Eskey says. The bureau will then talk to the creditor, who will correct the report if he or she agrees with your information.
Consumers should present any receipts or statements to build their case with the credit bureau, Mattes says. If the information isn't enough to update the report, consumers should call their creditor directly to discuss the problem, he says.
A pattern of paying late is not going to be removed from the report, Eskey says. Neither is a court judgment ordering someone to pay a creditor.
``The bad doesn't just come off unless it's wrong,'' she says.
In addition, a divorce decree does not automatically clear credit on joint accounts, Eskey says. Suppose a couple with a joint account divorces, and the person taking over the use of that card fails to pay on time. The missed payments will be reflected on both sides' credit reports, she says.
Though a good credit history is vital when buying a home, lenders and credit counselors say people with past problems should not despair. It is possible to re-establish credit.
But, they say, be prepared to wait.
``It takes a good two years,'' Eskey says.
To begin rebuilding, Eskey advises consumers to bring their accounts current by paying off the past-due amount. Then, they should begin making the regular monthly payment before the due date.
Often, she says, people think the best way to clean their credit is to pay past-due account balances in full - even if they amount to thousands of dollars - then start over.
But by bringing the account current and slowly paying off the remaining balance on time, consumers will establish a desirable pattern of prompt payments.
In recent years, more consumers have filed bankruptcy, thinking that is the easiest way out of their financial plight. Still, because a bankruptcy remains on a credit report for up to 10 years, it can be a major strike against a mortgage applicant, Eskey says.
To avoid potential credit problems, Eskey says, it is important for home buyers, especially first-timers, to educate themselves on the process of buying a house.
For some buyers, a house has become an impulse purchase, Eskey says. Instead, consumers should carefully review the cost of owning a home to determine how much they can afford to spend, she says.
Though real estate agents and lenders may have the consumer's best interest at heart, they also have an interest in selling a house and a mortgage. Thus, Eskey says, they may not be the best people to advise prospective home buyers on how much they can afford.
Bessie Abner, program director of Consumer Credit Counseling in Portsmouth, says many consumers fall into debt because they don't know how to budget.
By sitting down and developing a budget, either on their own or with a credit counselor, they can review all their current expenses, along with the estimated cost of owning a house and unexpected expenses that may arise.
In the end, Eskey says, it is better for home buyers to buy a house that's well within their means than one they will struggle to afford and might actually lose through foreclosure.
``It's a blow to the ego to lose something, to step down,'' she says. ``You can always move up.''
by CNB