Credit is not the only gauge
Glenwood Springs, CO Colorado
There was a time when one’s credit report was a deep, dark secret, available only to employers, lenders, cops, and others who could mess up your life with no recourse.
Now, because of federal legislation over the years, credit reporting agencies are liable for incorrect information, and everybody has access to the items on their report and their credit rating. This is obviously a good thing.
But, like all numerical criteria devised by humans from IQ tests to SAT scores, credit scores have glaring limitations, and have achieved a power that is often not commensurate with their real value as guides for granting credit.
Citing your credit score has become the latest “you’ve got a dime, I’ve got a dollar” conversational ploy in bars or kaffeeklatsches. If the kids are tanking in school, you can deal out your high credit score, and you’re one of the girls again.
But a high credit score doesn’t mean you’ve got a ticket through the Pearly Gates, or even that it’s a sure thing that you’ll pay a loan on time. In the Great Mortgage Meltdown of the 21st century, millions of loans were made based solely on credit scores. And these are the mortgages that ultimately took down Fannie Mae, Freddie Mac, Washington Mutual and a fistful of Wall Street banks.
These loans were credit score driven. If the number was high enough, lenders didn’t verify income, bank accounts, or anything else about the borrower. Just because Bubba made the payments on his F150 on time was no predictor that he’d be able to hack a mortgage payment on a home loan twice the size of any he’s ever had before.
People with high credit scores can have all sorts of things in their backgrounds, including bankruptcies and foreclosures. There’s a certain statute of limitations that wipes those embarrassing little incidents off the slate after a period of time. A lender may not know if it’s dealing with a borrower whose pattern of behavior is to mail in the keys at the first sign of financial trouble.
People who use credit sparingly, save money and pay cash for purchases can have a lower score than heavy users of credit. You’d probably think twice about which one you’d lend your mother’s money to.
Now lenders are doing what they did before the feeding frenzy of virtually free money gripped the nation. Sufficiency of income, probability of continue income, liquid assets and other common sense factors are taken into consideration in making a loan.
Credit scoring is a valuable tool, but other things are equally, or more important.
Like, for instance, does the borrower make enough to make the house payment.
Pat Dalrymple is a valley native. He’s been in the mortgage and banking business since 1961. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.
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