By Sam Brock, Supreme Lending and Member, CCAR’s REALTOR®/Lender Committee
We’re all now well aware that roughly 143 million consumers’ personal information was stolen via a security breach at Equifax. This could include names, Social Security numbers, birthdates, addresses, and credit card numbers for millions of American homebuyers. What does this mean for your clients? Immediately, no one knows, but there are dozens of potential ramifications that could last for decades. Potentially, the information could be used to open bogus credit cards and unsecured loans, file false tax returns, or purchase property using loans in another people’s names.
In terms of the immediate effect on your home-buying clients, there are a few ways they can get hurt:
- New accounts created in their name can cause a decrease in FICO score because part of the score calculation is based on the age of the revolving (credit) accounts in one’s credit report (even if there are no charges on the account).
- When revolving accounts carry a large balance, this will cause the scores to decrease even further.
- The monthly payment on the new debt will cause their debt-to-income ratio to increase, potentially disqualifying them from loan qualification.
- Even after an initial credit pull is found to be clean, there is a chance that prior to closing, false information can present itself.
- If false account information is found, even if it is early, reversing the information can take time because most creditors require consumers to prove that the activity wasn’t theirs. They also have their own criteria for research timelines, including reporting to local and federal law enforcement.
- The time it takes to unwind the illegal activity can have implications on your contracts, especially where there is a later domino effect between other buyers and sellers or back-up offers are in place.
What should consumers do to protect themselves?
- Consumers may place a fraud alert on their credit files. This warns creditors to take an extra step to verify consumers’ identities before issuing credit. This is free, and when created with one credit bureau, they should also notify the other bureaus.
- Consumers can place a freeze on their credit file. There is generally a cost to add and remove a freeze, and it must be done with each bureau. This is generally not recommended when in the process or considering a mortgage, but it will prevent new accounts from being opened or credit from being run. It does not prevent modifications to existing accounts. Remember that consumers may have to have the freeze removed more than once during the mortgage process as lenders pull credit again prior to closing. This ‘soft’ pull is to confirm that no new accounts have been opened.
- The breach itself should have no effect on scores, trade lines, or credit history as long as no accounts are used or opened illicitly. It’s the use of the buyer’s identity that would cause problems, and there are reports at this time that no illegal activity has been discovered yet.
- Consumers can still visit annualcreditreport.com once every 12 months to view their credit reports and activity to confirm no new accounts or inquiries have taken place. This is usually recommended for everyone to do every year.
- Your buyers should pay extra attention this spring when 2017 taxes can be filed, and consider filing as early as possible to avoid the possibility of a bogus return being filed on their behalf.
- Consider a credit monitoring service, either through the bureaus or a vetted third party provider.
As with most things in our day and age, vigilance is the key to protection. Proactive steps to protect consumers’, and your own, personal and credit information should prevent any and all issues before they reach an emergency state.
Contact information for the three credit bureaus:
Equifax: 1-800-525-6285 or www.equifax.com
Experian: 1-888-397-3742 or www.experian.com
TransUnion: 1-800-680-7289 or www.transunion.com
For these and other questions about lending, contact the REALTOR®/Lender Committee at RealtorLender@ccar.net.