"What would happen if someone else used my social security number for a utility bill and I never lived at that address? This happened about five years ago when I found out about it. Will this hurt the underwriting of the house I am trying to buy"?



In conversation I found out that this "utility bill" later turned into a collection. Donald is fortunate that it is five years old. I also learned that his credit scores are: 615, 625, and 652.

My answer covered several issues:

The first thing you want to do when you find out something like this is dispute it with all the credit bureaus: Equifax, Trans Union, and Experian. This process is much easier than it use to be years ago thanks to the Internet. Each of these company's have a web site full of information you should understand about your credit, credit scores, and how to improve them. You can file your dispute on line from their web site.

The Government mandated a few years ago that every person be entitled to one free credit report each year, from each bureau. This is a wonderful thing because years ago you were not allowed to even look at your report. You were really up that well known creek and just guess who had the paddles. Get your report once a year from each company and take the time to review it. There is only one web site you can get these reports from and that is annualcreditreport.com.

This 5 year old, small collection should not prevent a loan from being approved if your credit scores are high enough. Most underwriting today is performed on an automated system so you may have to provide an explanation and supportive documentation and/or you may be required to pay the collection.

In this case Donald's credit scores are not really bad but they are not really good either. Sadly, they are a little low compared to the average. Don't wait untill you apply for a mortgage loan to find out you have a problem.

Donald's employment history, his debt to income ratio, and how much he is putting down play a large part in loan approval. These things could be considered compensating factors if all three are very strong.

With the information I have, I would think that a conventional loan with a high loan to value (small down payment) would be difficult and the interest rate, if it were approved, would reflect the low scores. I would recommend an FHA loan. The interest rates are very low and FHA doesn't require a large down payment. This assumes the other factors are in line.

FHA mortgages are some of the best loans on the market. They are extremely forgiving with credit issues, they only require a low down payment, and they have some of the best rates on the market. I should add one thing about the interest rates. As I write this the par rate is equal to or lower than a conventional loan (depending on the lender) so if the mortgage company or bank you are working with is charging you a much higher rate they are probably taking advantage of your situation. Shop for interest rates before you apply.