New, bipartisan legislation proposed on Capitol Hill last Thursday could help mortgage applicants nationwide who are frustrated with their credit scores or errors on their credit files.

For starters, the "Fair and Accurate Credit Transactions Act of 2003" (HR 2622) would allow all Americans to know what's on their three credit bureau files in advance of applying for a loan. Sponsored by Rep. Spencer Bachus (R-AL), chairman of the House Financial Services and Consumer Credit Subcommittee along with two Democratic colleagues, the bill would allow consumers to request one free credit report per year from the three major bureaus-- Equifax, Experian and TransUnion. It would also entitle consumers in any state to receive their credit scores along with the credit reports, plus an analysis of how the consumer could improve on his or her score.

Currently only California and Colorado residents have the legal right to free access to credit reports once a year, plus guaranteed access to any credit scores used in a loan decision. Five other states allow residents to request a free copy of their credit files--but not obtain their scores--once a year.

Equally significant, the bill would appear to give a boost to so-called "rapid rescoring" for mortgage applicants. It directs the national credit bureaus to promptly investigate any disputed consumer credit information that is brought to their attention by "intermediaries who consolidate reports for mortgage lenders," according to a statement by the subcommittee.

These "intermediaries" typically are regional or local credit reporting companies that mortgage lenders or brokers use to access loan applicants' files from the nationl bureaus. About 150 of these firms offer "rescoring" services, which allow quick corrections of erroneous information contained in a national bureau's files. The rescoring normally is fast enough--72 hours or less--to allow an applicant to obtain a new score, based on the corrected data, in time to continue the application process.

Rescoring--a relatively recent development that is generally restricted to home mortgage loans--works like this: Say a consumer wants to buy a home with a mortgage at the lowest available interest rate. Because of credit reporting errors made by banks or merchants, however, the home buyer's credit bureau files contain negative information that lower his or her credit scores below the threshold needed to qualify for the loan and desired rate.

Under the traditional, time-consuming method of correcting errors, the applicant would have to spend a month---or maybe a few months--corresponding with each of the national credit bureaus to get the bad information deleted. The application for the mortgage would have to be withdrawn in the meantime, possibly causing the home buyer to lose the house to a competing purchaser.

But under rapid rescoring, a loan applicant who has letters from creditors verifying the negative information on their files is erroneous, can get it deleted immediately. The rescoring firm, working under contracts with the national bureaus, submits the corrections directly to their electronic credit files.

Terry W. Clemans, executive director of the National Credit Reporting Association, welcomed the subcommittee's reference to "intermediaries" who work with the mortgage industry. Many of his association's members have rescoring contracts permitting them to assist mortgage applicants whose scores are artificially depressed by bad information.

Rescorers work for lenders and broker clients, not directly for mortgage applicants. Charges for the credit file corrections vary widely, and are dependent upon the number of entries corrected. Charges for the service may exceed $100 to $200 in some cases.

The new legislation is expected to be marked up by the Financial Services committee in the near future, and go before the full House this summer.