The purchase of a first home is a true defining moment in life for Americans. Homeownership is the quintessential American Dream. Yet, for too many hard-working Californians, home ownership represents a pipe dream, not the American dream.
Over the past several years, lenders have increasingly used “credit scores,” also known as FICO scores, to determine whether or not to extend credit, and at what interest rate.
Unlike the law governing credit reports, lenders are not required to disclose credit scores or what factors were used in determining those scores to prospective borrowers.
Consumers are at a considerable disadvantage because information that may not appear to be negative on a credit report can, at times, adversely affect a credit score.
For instance, a homebuyer’s score may be negatively affected if the consumer has “too many credit accounts,” even if the accounts were consistently paid on time. A lower credit score may result in a borrower not being offered a loan or having to pay a significantly higher interest rate for a lower quality loan , all because consumers don’t have the right to know their credit score.
In an effort to provide this vitally important information to homebuyers, the California Association of Realtors (C.A.R.), working with state Sen. Liz Figueroa, D-Fremont, and Consumers Union, is sponsoring consumer “Right to Know” legislation for homebuyers.
SB1607 requires lenders to provide California homebuyers with their financial credit scores and the information that goes into creating them. It also holds credit bureaus financially responsible for errors on a credit report when they are not corrected in a reasonable amount of time.
The bottom line is: When homebuyers are applying for a loan, the first thing they need to know is “how good is my credit?”
By ensuring that consumers are provided with their credit score, as well as information on how that score was determined and what it means, the California Association of Realtors hopes to demystify the credit scoring process in order to help homebuyers shop for mortgages and better evaluate loan rates.
Johnson is president of the San Diego Association of Realtors.