Home Mortgage Equals Good Debt
September 18, 2016
Low Interest Rates
Best Mortgage Rate Pricing
September 24, 2016
Show all
I need Credit Repair

Three Major Credit Reporting Agencies

There are three major credit reporting agencies, the giants in consumer credit reporting agencies are TransUnion, Experian, and Equifax. Credit repair is when any consumer disputes negative report items on their consumer credit report. All disputes are ultimately going to make their way to one of the big three consumer credit reporting agencies. There are thousands of local credit reporting agencies that report consumer activities.  Since there are so many smaller credit services when you buy that new gadget because it is 90 days same as cash, you don’t know which credit reporting service they will use to determine your credit risk.   Every credit bureau issues a credit score, this credit score is a risk factor associated to the consumer from 300-850.  The higher the credit score the better the lending prospect.   When you make application for a mortgage the mortgage company or broker will pull credit from all three, TransUnion, Experian and Equifax and use the borrowers middle score of the three for qualifying. What if there are two borrowers? A credit pull for both borrowers from all three credit reporting agencies is pulled and will use the lower of the two borrower’s middle credit score for mortgage qualifying. The Larry Stepp Team at Gustan Cho Associates come across thousands of clients that need assistance with credit repair. Often only a small action on the part of the borrower can boost FICO scores so credit repair begins with the borrower.  There are life situations that require assistance from credit repair professionals and credit repair does work and derogatory marks can be removed.  Credit bureaus do make mistakes and so do consumers. There are tricks of the trade credit professionals use that can remove almost everything.

Credit Repair and Derogatory Credit Items

Outstanding collection accounts, charge off accounts, late payments on revolving accounts, judgements, tax liens, bankruptcies, foreclosures, deed in lieu of foreclosure and short sales are all derogatory credit items.  All of these items can be removed from your consumer credit report and stay off your credit report for good.  A borrower with a good credit report is always the ultimate for a borrower when qualifying for a home and going through the mortgage application process but realistically life is what happens when you are planning something else and a large percentage of homebuyers need some guidance and credit repair.  A good mortgage loan officer will not shun you away if your credit scores are below 620.  Mortgage Loan Originators for the most part will help borrowers who do not qualify for a home mortgage due to low credit scores.  One of my clients built a house and had great income but her FICO scores were below the needed requirement to get her into the home without a HUGE down payment.  Upon review of my clients credit report the scores were low because of many credit cards near their limit.  There were no late payments but the large of amount of short term debt was hurting.  When we reviewed this, my client rearranged how the use of credit was being used, paid off or down to 10-20% of short term debt and by the time the house was built was a happy homeowner.  My point is sometimes an adjustment in pattern of spending can do it.  Every consumer should take the time to review their credit and check for errors.  Planning ahead is much easier than finding that dream home and not being able to get a pre-qualification letter because of erroneous reporting or not paying attention.  Good credit is important when it comes to applying for a home mortgage, not just good FICO credit scores but goo payment history.  Often lenders will want to see a 12 month history of on-time payments made on any tradeline (credit cards or revolving credit). Even insurance companies will penalize you in the form of insurance rates if your credit report is reflecting poor credit scores or even deny insurance coverage.  The lower the score the higher the risk for the lender and many times mean higher interest rates, for conventional mortgage loans the best rates are reserved for those with a FICO of 720 or higher.  According to FHA Guidelines, a borrower can qualify for a mortgage loan with a FICO score of 580 or above with 3.5% down payment but when scores are below 620 the allowable debt to income ratio (DTI) drops dramatically.   Even perspective employers will sometimes pull credit to decide the character of the job applicant, this is especially true in the financial services industry.  Mortgage regulators will pull credit on every perspective mortgage loan officer that applies for state licenses to determine “financial responsibility” a very broad term that gives each state the right to ask questions and expect answers for any derogatory report on an applicants credit report. Some states will pay special attention to an applicant with scores 620 or below.  Mortgage regulators want to see an applicant has re-established credit for 12 months if they have derogatory reporting on their credit report.  The state of New York will spend weeks or even months after pre-education and application is made before approving a license whereas the state of California may pull credit as required but may not even look at it.  The point I would like to make here is that Mortgage Loan Originators know personally how it feels to have their credit put under a microscope, since I have been in the business I check everything on a consistent basis, and another note I have used professional credit repair to remove a couple of items from my credit report.  Sometimes it is necessary, mistakes are made.

Credit Repair-Is it necessary?

I really don’t know of anyone in recent years I have met that does not know what credit repair is. Unfortunately I also know many who have a disdain for credit repair due to a bad experience.  On the same note I know people that have positive words to say about credit repair.  Since 2008 there have been many laws and regulating bodies that have authority to “reach out and touch”  a Credit Repair professional acting in unscrupulous ways.  There are many do-it-yourself credit repair guides that will direct almost anyone through credit repair for themselves by disputing derogatory credit to the big three credit bureaus.  For a person that has documentation of proof of errors, these work and allow privacy.  I have found many people do not use credit repair for one of two reasons or both, they do not want to share because they may be embarrassed or they are ignoring it because of the frustration or hassle of dealing with it.  For me personally it angered me errors were made and by me putting it off, like ignoring helps it got worse so I gave in and hired someone and quite painlessly the corrections were made.  Once a consumer disputes a derogatory item, the credit bureaus will contact the creditor and relay the disputed item, the creditor has 30 days to respond and validate the item, if there is no response by the creditor (often there is not), the credit bureaus needs to delete the credit item.  Many creditors will hire Credit Repair companies such as Credit fix advisors and I have witnessed credit repair companies remove late payments, collection, charge offs, repossessions, foreclosures, bankruptcies, and judgements deleted off of consumer credit files.

Credit Fix Advisors

Credit Fix Advisors

However, they like anything in life are not 100% guarantee and sometimes credit repair does not work for mortgage qualification. Sometimes it requires time, over time credit improves and in situations like VA, FHA, USDA mortgage loan applications after bankruptcy or foreclosures there are required waiting periods.  The good news here is you do not know if you do not ask and having a bankruptcy, foreclosure short sale, deed in lieu of foreclosure will not keep you from becoming a homeowner again. A mortgage loan originator should never issue a pre-approval letter to a home buyer without reviewing the credit report thoroughly.  Many loan officers will see open credit disputes and issue a pre-approval letter, but this can prove to be troublesome.  Open credit disputes will not stop you from qualifying for a mortgage but it will halt the process.  A mortgage loan officer may instruct you to detract the dispute and issue a pre-approval letter, but the detraction can take weeks to a couple of months. Furthermore when a consumer disputes a negative credit item, the credit bureaus automatically discount the negative credit items from the scoring formula so this derogatory is not calculated into the credit scores of a consumer. When the credit dispute is retracted, the negative item is calculated back in and the FICO scores will drop.  For the borrower/applicant that is riding the fence between qualifying and non-qualifying FICO scores this may drop may keep them from qualifying. The drop in score can be significant if the item is a recent derogatory item, if it is an older derogatory item it may not be as significant. Please remember the FICO scoring algorithm is complex, it is posted on the FICO website and it is still complex.

When Credit Repair May not work

Credit repair professionals can delete outstanding collection accounts, late payments, repositions and charge off account and definitely help the borrower/applicant improve their credit scores and there would be no way of finding out once a negative item is removed from one’s credit report. However if you have any public records removed you will have a challenges when you are going through the mortgage application process.  Every mortgage lender will do a third party search using Lexis Nexis and/or Data Verify a nationwide third party public records search.  As mentioned earlier there is a mandatory waiting period after a bankruptcy and foreclosure,  a 2 year waiting period after a Chapter 7 Bankruptcy to qualify fora FHA Loan.  A three year waiting period after a short sale, foreclosure, and deed in lieu of foreclosure to qualify for a FHA loan.  Maybe these were deleted from your consumer credit report but they will show up on the third party records search and there is nothing but time to escape it.  Tax liens, judgements or any public record will be found.

The Larry Stepp Team @ Gustan Cho Associates is available 7 days a week, holidays and weekends.  We look forward to assisting you and providing you resources towards the American Dream of Homeownership.

 

Larry Stepp     407-922-4755     LarryS.HomesNetwork@gmail.com

 

 

The information contained on HomesNetwork.org website is for informational purposes only and is not an advertisement for products offered by Loan Cabin or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates and do not reflect the policy of GCA, its officers, subsidiaries, parent, or affiliates.

1 Comment

  1. Gustan Cho NMLS 873293 says:

    Excellent article from Mr. Larry Stepp. Like to congratulate Larry Stepp of Homes Network for starting his new career at The Gustan Cho Team @ Platinum Home Mortgage Corporation NMLS 13589. I predict that Larry will have his own team and branch within the next 12 months. Again, Congratulations to Larry Stepp in his new position with Platinum Home Mortgage Corporation.

    Gustan Cho NMLS 873293
    Website http://www.gustancho.com
    Part of The Larry Stepp Team @ Platinum Home Mortgage Corporation

Leave a Reply

Your email address will not be published. Required fields are marked *