The Credit Report

I've just been told that starting July 1, 2005, I will have to have explicit written authorization to run credit.



It is not immediately clear to me from the information given whether this extends to non-mortgage credit providers (I've Googled and Yahoo'd and even Asked Jeeves several combinations of words each without success). If it does, this is probably one of the niftiest consumer protection things to come down the pike in a long time. On the other hand, if it's limited to mortgage providers, then it's probably a stab at making life difficult for Internet brokerages, which may do business at a remove of thousands of miles.



An Internet broker employee is talking on the phone with a client, not physically in the client's presence. They can be some of the cheapest loan providers out there, if they are so minded (as I keep saying, a far more important concern is how low a provider is willing to go, not how low they can go). So it becomes a real hardship on their business if they can't run credit without explicit written permission, whereas it's not a major issue with a more traditional brokerage. A loan quote isn't real unless you can lock it right now. Your loan can't be locked without running credit. And I can't run your credit until I send you a form and get it back. No big deal if I'm sitting right there. A real pain if I'm in California and the client is in Florida. I'm not even certain facsimile permission (no original signature) is acceptable, as it's not something that enters into my current business. This means a delay potentially of days while the form gets back to the lender. So life for an Internet broker suddenly gets a lot more challenging.



On the other hand, if it extends to all providers of credit, then it becomes worth the game. Mind you, an adult should be aware of what's going to happen if they give a social security number to a car dealer, furniture store, or anyone else. I've never heard of anyone using it just for liar's poker. Each time somebody runs credit, it's an inquiry - a ding on your credit. Inquiry dings are progressively damaging. There used to be a game among mortgage providers until the new rules a couple years ago - see if they could be the last ones to run your credit before it went under a threshold score, and some would run it multiple times if they could. Anybody running after that would be at a disadvantage.



With the new rules that every consumer should get down on their knees and give thanks to the National Association of Mortgage Brokers for getting through, consumers are now actually permitted to shop around for mortgage rates without getting dinged every time their credit is run - provided they run credit under a business code that say's "inquiry for mortgage." (So make sure your bank or credit union runs it under a mortgage inquiry code, and not a general inquiry code). All of the times it is run within fourteen days by mortgage providers count as exactly one inquiry. This gives consumers the ability to shop as much or more for a mortgage as they would for, say, a toaster oven, without being penalized.



But if the new rules apply to everyone, this is a good thing. Every time I start a loan, I have a set spiel that I go through. "Don't change anything, credit-wise, even if you think it will help. Don't buy anything. Don't charge anything on your credit cards. Make your normal payments. And don't allow anybody to run your credit for any reason. Don't even let them have your social. Because they will run your credit, I guarantee it. On every home loan, one of the last things that will happen before your loan is recorded at the county will be that the lender will run your credit again to make certain nothing has changed. And if anything has changed, you will very likely lose the loan (and the house if it's a purchase). Even if the escrow company has the money or it's actually been disbursed, the lender will pull it back. Until your documents are recorded with the county, don't breathe differently."



For a certain personality type, being told she can't shop for curtains and furniture and paint for her new house is nothing short of torture, and so I've learned to be very explicit. "It's okay to look, to talk to the nice salesfolk, and to get an idea of what you want. But don't actually buy anything. Tell the nice salesman who says he just 'wants to get a head start on your order' that your mortgage loan officer said that you're right on the line, and he if runs your credit and drives you under the line the first consequence to him will be no order. So tell the nice salesman that you're really protecting him by not giving him your social, because if he runs your credit and costs you the loan you'd have to tell your uncle Bruno, who's best friends with Tony Soprano, about it. And we all know what happens then."



Okay, things are not usually that bleak. It's usually just a higher rate you end up with. So your monthly payment is $40 higher, in addition to what you spend on the new stuff that caused money to go into that salesman's pocket. Doesn't that make you feel all Warm And Tingly towards that salesman? Didn't think so. But a certain percentage of the time, this new monthly payment you now have because you Bought Something means you Do Not Qualify for the loan. So: No loan. No house (if it's a purchase). No lower payment (if it's a refinance). No cash out of your equity (if that's what you were trying to do). And so now you've got this stuff, and no house to put it in. Or you've got to tap the vacation or retirement account to pay for it because you're not getting a refinance on reasonable terms. Not to mention all the times these people run credit and hurt people's credit scores without real permission when there's no mortgage loan in the offing. So I can put up with one segment of my industry have a slightly higher bar to jump over if that's the carrot.



Caveat Emptor

UPDATED here