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Learning why lenders say no

[Aug 3, 2011.]

 

The Dodd-Frank financial reform act includes a variety of clauses that will impact consumers as well as financial institutions. On July 21, 2011, the provision that forces mortgage lenders to explain their decisions to customers went into effect.


Mortgage lenders and credit scores


If you are turned down for a mortgage after July 21, your lender will need to give you an "adverse action" notice that includes your credit score and an explanation of why you were turned down for a loan. If you are quoted a higher interest rate than customers with the best credit, the same rules apply.


According to USA Today, American consumers submit about 1 billion credit applications every year, with about 50 percent of all those applications resulting in either a denial of credit or an approval at a higher interest rate.


You may have already seen your credit report, which you are entitled to receive for free once per year at annualcreditreport.com. But those credit reports do not include your credit score. You can pay extra to receive your score, but be forewarned, the score you see may not be the same one seen by mortgage lenders. Not all lenders use the same credit reporting bureau and sometimes consumers are given a credit score that differs from the ones used by mortgage lenders.


Mortgage loans and credit scores


If you have had bad credit in the past and are working toward improving your credit score in order to apply for mortgage refinancing or a mortgage for a home purchase, you should start by requesting your credit report so you know if there are adverse remarks on the report. If there are mistakes on your report, it could take time to correct them, so be sure to check your report early in the mortgage loan process.


Fixing your credit cannot be done in an instant, but there are steps you can take to improve your credit score once you understand how credit bureaus determine your score. Your recent repayment history will be weighted more heavily than mistakes you made years ago, so paying all your bills on time and bringing delinquent accounts up-to-date can start sending your credit score higher.


Check out your options for a new home loan here.


For refinancing options in your area go here.



 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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