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As a homeowner you probably think you are the last person that needs to monitor your credit. You have a mortgage, which probably means you have pretty good credit.
Why would you monitor your credit?
The reasons you need credit monitoring might surprise. The mistakes you find when you check up on your credit report might even surprise you more.
1. Credit Scores are Critical Safety Net in Down Economy
First and foremost, we are in a bad economy. That means your credit score is more important than ever. Your credit report is more than just a means to a mortgage–It touches every aspect of your life. Here are just a few of the ways credit reports are being routinely used in your life daily (some more obvious than others).
- Credit cards
- Lending (auto, mortgage, home equity)
- Insurance (health, life, and auto)
- Renting a home or apartment
- Employment
- Cell phone agreement
In a down economy, credit only becomes tighter and tighter as lenders and businesses get more and more conservative. As a result what’s considered an acceptable credit score can shift significantly. For example, in the past a 580-620 could get you a mortgage loan. In today’s economy you will be hard pressed to find an affordable mortgage with a credit score below 680. Do you know what your credit score is?
2. Banks are Making More Credit Reporting Mistakes
Banks make mistakes. It may be hard to believe, but banks make credit reporting mistakes all of the time.
Credit reporting is largely a function of computers automatically reporting the results of millions of consumer transactions–debits and credits to your credit accounts. But, the errors that could impact your credit score can go far beyond the accuracy of recording your payments.
Here are some of the common errors bank make on credit reports every day:
- Incorrect recording of payment date
- Incorrect recording of payment amount
- Incorrect reporting of credit account
- Incorrect reporting of credit limit
- Incorrect spelling of name or address
These are just a few of the simple data errors that can occur, changing you from a good payer to a delinquent account. And neither you or your bank will likely know the error has occurred unless you are denied for new credit or you are monitoring your credit.
The increase in bank mergers (consolidating various computer systems) and changes to credit card rules (changing the computer processing of these transactions) will only increase the likeliness of banks making more frequent credit reporting errors.
Has you bank made any errors on your credit report?
3. Identity Theft is on the Rise
The biggest contributing factor to your credit score (35 percent) is how well you pay your bills. But, what if you have bills you don’t even know about? Credit accounts that you didn’t even open.
How could this be? Identity Theft!
Identity theft is one of the fastest growing financial crimes in the US with over 11 million victims. The scary part is you might be a victim and not even know it.
According to study done by the Identity Resource Center, 38-48 percent of victims take up to 3 months to detect the identity theft while 9-18 percent of victims are unaware for up to 4 years. It goes without saying that the longer the errors are reported on your credit report the harder and more expensive they are to fix.
Fixing these identity theft related credit report errors is no quick process: 26-32 percent of victims take 4-6 months to correct the errors, while 11-23 percent of victims take 7 months to 1 year to repair their credit.
But, the time to fix credit errors due to identity theft may be the least of your worries–the costs of identity theft can be staggering. Victims in the Identity Theft Resource Center study lost between $1,820-$14,340 and spent between $851-$1,378 to fix the credit errors.
How long are you willing to lend out your good credit rating to an identity thief?
4. Trial Mortgage Modifications are Affect Credit Scores
If that weren’t enough, between errors and thieves there are even more dangers lurking out there. Most homeowners know that not paying your bills will guarantee a bad credit score. But did you know paying your mortgage can kill your credit too?
That’s right! If you are a good mortgage payer and qualify for a Home Affordable Modification Program (HAMP) your credit score is probably already going down. Even if you are on a trial mortgage modification plan your bank has probably been reporting you to the credit agencies as a credit risk.
These government sponsored loan modification programs designed to help good paying homeowners deal with unexpected financial hardship are being reported to the credit bureaus as repayment or partial payment plans. That is a red flag to anyone reviewing your credit report that you are a risk–remember that means employers, insurance companies, and cell phone plans.
If you have even inquired about one of these loan modification programs you need to check the impact to your credit score.
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