By: Jay Bray, CEO of Nationstar Mortgage and Mr. Cooper
Credit scores are far too often something we tend to dismiss in our day-to-day lives—that is until it’s time to make a big purchase like a house or a car. But with the unfortunate security breach at Equifax that impacted hundreds of millions of Americans, protecting your credit has quickly become a national topic of conversation – one that needs to be had.
Why your credit score is important
Your credit score is used to determine your credit worthiness. It’s a way for lenders to predict if you’ll be able to pay a loan back, and lenders certainly reference your score when you apply for a loan such as a mortgage. You may not realize that your credit history can also factor into other life events and purchases, such as finding a job, getting a cellphone and taking out insurance policies.
You may be surprised to learn that new research shows that credit is now holding weight in relationships. According to the study, financial responsibility was ranked by nearly 70 percent of online daters as a very or extremely important quality in a potential spouse, ahead of sense of humor, attractiveness and ambition.
What mortgage lenders look for in a credit score
Your credit history and your current credit score are two of the biggest things a lender will use to help make their lending decisions. The track record you have established while managing your credit and making payments will give the lender a good idea of your credit worthiness. Lenders will look at everything from your current income and employment history, your net worth and your current circumstances to determine whether you can comfortably afford your payments and if you are able to repay outstanding debt. Check out our blog post on “Your Credit Score and How It Affects Your Mortgage” to learn more.
What you can do to keep credit safe
With the Equifax breach fresh on everyone’s minds, it’s no doubt that identity theft and protecting your credit is a growing concern. It’s something we should all take seriously, and there are a few things you can do to keep your identity and credit safe such as using biometric protection such as fingerprint scans to lock sensitive applications, creating stronger passwords for your online profiles and never sharing your social security number over the phone or internet unless you have initiated the contact.
One of the best ways to protect yourself from potential identity theft is to subscribe to credit monitoring services. Technology helps here, as most monitoring services will automatically text your phone or send you an e-mail when a credit bureau is alerted to a new application for credit. While most credit monitoring services come with a fee, or use your information to try to market products to you, following the Equifax breach, any impacted customer can receive free credit monitoring and identity theft insurance directly from Equifax. To determine if you were impacted and eligible for this protection, check www.Equifax.com.
Another way for consumers to protect their credit is to “freeze” it. A credit freeze allows you to restrict access to your credit report which makes it difficult for someone to open a new account in your name. To freeze your credit, you’ll need to contact each of the nationwide credit reporting companies: Equifax, Experian and TransUnion. There may be fees to freeze your credit that vary based on where you live, and they commonly range from $5 to $10.
Freezing your credit does not impact your credit score, and it also does not keep you from applying for a job, buying insurance or even opening a new account or loan. However, you’ll need to lift the freeze temporarily, either for a specific party or period of time, to do these things. Freezing your credit will also not prevent identity thieves from negatively impacting your life in other ways, such as filing fake tax returns. Earlier filing of your taxes can help and if you suspect your identity has been used to file a fake tax return you should contact the IRS immediately.
What our industry can do to help protect consumers
According to experts, over half the U.S. population has had their personal information involved in a data breach even before the recent Equifax issue, so it’s important that consumers pay attention to their credit and their financial accounts. It’s also crucial that businesses do what they can to protect consumers’ private information. We must be transparent and honest; if a breach happens, it’s critical to make people aware as soon as possible.
The aftermath of a consumer data breach is complicated, and unfortunately, the challenges mostly fall on the consumer. When it comes to home loans, if a consumer’s identity is stolen and their credit score is negatively impacted, it can make it difficult to get approval from a lender. And it can be a painful process to correct your credit report.
At a non-bank mortgage servicer and lender, like Mr. Cooper, loans are owned by property investors, such as the government-sponsored enterprises Fannie Mae and Freddie Mac. Because of that, we are required to make loan decisions based on investor requirements. At this point, the majority of investors require lenders to utilize a FICO credit score and all three credit bureaus to determine a potential homebuyer’s credit worthiness. While investors are starting to offer alternative credit options for borrowers without a FICO score, these options are very limited. As an industry, we need to come together to find better solutions for consumers and evaluate the benefits of utilizing options outside of FICO and the three bureaus. It likely won’t be an easy discussion or a quick decision, but it’s important that we stand up for all consumers in our country and their financial future, which ultimately impacts the success of the economy and our businesses too.