Mortgage Q&A: Preserving clean credit

By Henry Savage SPECIAL TO THE WASHINGTON TIMES | Friday, November 21, 2008

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Q. My husband and I just returned from a six-year assignment overseas.

We have been renting our current house and are in the market to buy a new one. We called our former mortgage broker to get pre-approved, and we were shocked to learn that our credit score, which used to be in the 800s, is just 655.

We have no debt except for the mortgage on the rental property. It seems that the property-management company failed to pay an electric bill, so there is a $280 unpaid collection on our credit report. This is bringing down our score. We are outraged. What can we do to tell the reporting agencies that this isn't our fault?

A: A credit-score drop from 800 to 655 is a serious matter, especially in today's credit crisis. It doesn't surprise me, however, that your score dropped as much as it did as a result of the collection.

From the number of questions I receive from clients, it appears that there is a strong but largely false belief that multiple inquiries will bring down one's credit score. I hear it all the time. Folks in the early stages of buying a house are reluctant to give me authorization to pull their credit because they think the inquiry will bring down their score.

Though multiple inquiries may bring down a score nominally, many other things can adversely affect a credit score. Here's a quick list.

• Recent late payments on a mortgage. This is the kiss of death. If you have been more than 30 days late on a mortgage payment in the past six months, it wouldn't surprise me if your credit score dropped 100 points or more.

• An unpaid debt that has been placed into collection. This is where your problem lies. The utility company doesn't know -- or care -- that you have hired a property-management company to collect rent and pay bills. It only knows and cares about one thing: collecting its bills.

• Late payments on consumer debt, such as credit cards. Being late on the mortgage is fatal, but being late with credit card payments is almost as bad.

• Too much debt and too little available credit. If you have three credit cards with a $20,000 balance and the total limit is $22,000, the agencies will determine that you are "maxed" out. This will bring down your score.

• Multiple inquiries. As I said, having your credit report pulled many times might bring your score down a few points, but it shouldn't make a significant difference.

Your situation is interesting. Most utility bills are in the name of the occupant of the property, not the owner. This would mean your tenant would be 100 percent responsible for paying the gas bills, electric bills, cable bills and so forth. Real estate taxes, on the other hand, are the responsibility of the property owner.

My advice is this: Contact the utility company and your property manager and do a little investigating. Something's not right. If the money is owed, it needs to be paid. If you truly are not obligated to make the payment, the utility company has an obligation to reverse the erroneous reporting to the credit agencies.

• Henry Savage is president of PMC Mortgage in Alexandria. Reach him by email at henrysavage@

pmcmortgage.com.

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