Equifax, Credit Freeze, and Getting a Mortgage Loan

With the latest hack of personal information from one of the big three credit bureaus, the topic of freezing your credit report to prevent identity theft is back in the news.

Having a credit freeze on while getting a mortgage loan can cause huge headaches.

A credit report freeze, does exactly as the name implies.  It freezes your credit report so that no one can access or view the file until you unfreeze, or temporarily lift the freeze on your credit report. A credit report freeze prevents many types of fraud, especially the opening of new accounts in your name, but DOES NOT prevent the most common fraud, which is stolen credit card numbers.

Personally, I think credit freezes are awesome. The credit bureau’s make them more difficult than realistically needed to both freeze and unfreeze your account, taking up to three days to lift a freeze, and charging money for the service. That is why is hasn’t caught on with the basic public.

Why do they make it hard to freeze / unfreeze?

Simple. Follow the money.

Discover Card has for some time, and other credit cards are catching on with apps for smartphones, where their clients can instantly turn on and off their credit card, effectively preventing anyone from charging on the card.  The credit bureaus could do the same for your entire credit report, but choose not to.

The main reason is money.  For example, all those pre-approved offers you get in the mail? The creditor paid for those reports. If everyone has a frozen credit score, this limits the credit bureaus income and ability to sell those pre-approved reports.

Mortgage Loans and Credit Freezes.

When applying for new credit, and in this case, specifically a mortgage loan, your lender will see nothing, and get no scores if your account is frozen. Of course you will need to lift the freeze, as your mortgage lender will need to review your full credit report.

Where the problem come in for mortgage lending, is your lender actually needs to potentially have access to your credit report during the entire loan process, not just the first day when your Loan Officer pulls your initial credit report.

In order to be able to provide them a mortgage loan they must unfreeze their credit, ideally until closing. If they do not want to leave the freeze off that long, they will need to unfreeze it any time we need anything related to credit; first pull, re-scores, supplement reports, re-issue reports, and finally a credit report lenders look at just prior to closing to see if you’ve applied for any new credit.

The last report, known as an LQI report, is especially problematic. Your mortgage lender will pull this report generally within about the last five days prior to closing. If your report is frozen, we have to stop and call you to get it lifted.  It may take up to three days to unfreeze your report, potentially delaying your closing.

Therefore, mortgage lenders will ask all clients, if they have a freeze on their credit prior, to unfreeze their credit report until the day of the home loan closing.