Credit Repair During Mortgage Process Mortgage Guidelines


Credit Repair During Mortgage Process Mortgage Guidelines

This BLOG On Credit Repair During Mortgage Process Mortgage Guidelines Was UPDATED On July 17th, 2018

Credit Repair is the process of trying to get derogatory items removed off one’s credit report.

  • Does Credit Repair work? 
  • The answer is yes
  • Credit Repair does work
  • There are credit repair companies out there that can remove derogatory items such as the following:
    • unpaid collections
    • charge offs
    • judgments
    • bankruptcies
    • foreclosures
    • late payments
    • other negative credit items
  • Whatever a credit repair company can do, a consumer can do it themselves
  • However, many consumers do not have the time to do the research and tack on the duty of a credit repair consultant
  • Credit is extremely important when qualifying for a home loan
  • Credit score and overall credit history is what determines whether or not borrowers qualify for a home loan
  • Credit repair is not necessary to qualify for mortgage
  • Credit repair is recommended to consumers with bad credit after bankruptcy and/or housing event whether or not they are home buyers
  • Good credit scores and good credit history will save consumers money
  • Also, many employers now do credit checks on potential new employees as well as employees who are in line of getting promoted
  • Credit Repair during mortgage process is definitely not recommended
  • Consumers who want to start credit repair, they need to start it before mortgage process
  • Credit repair can backfire on consumers needing to qualify for mortgage

Credit Disputes Are Not Allowed During Mortgage Process

There are many rules and regulations when it comes to mortgage loans. Reason credit disputes are not allowed during mortgage process is due to the following:

  • Once consumer disputes a derogatory credit tradeline, the credit bureaus automatically negate the negative points from the credit scoring model
  • The verbiage on consumer credit report “Consumer Disagrees: Item in dispute’ automatically triggers the scoring formula to take out the negative factor from consumer credit scores
  • This triggers an increase of consumer credit scores
  • This is because the credit scoring formula treats the disputed item like it does not exists
  • When consumers retract credit disputes, it automatically adds the negative factor back to the credit scoring model so it drops consumer credit scores

Exempt Tradelines From Credit Disputes

One of the rules and regulations is consumers cannot have any credit disputes on non-medical credit tradelines with balances:

  • Also cannot have any credit disputes on charge offs and late payments or other derogatory credit tradelines
  • Charge off accounts do not matter when it comes to FHA Loans
  • However, cannot have any credit disputes on charge off accounts during the mortgage application and approval process
  • Medical collections are exempt
  • Borrowers can have credit disputes on medical collection accounts even with medical collection accounts with unpaid balances
  • Consumers can have credit disputes on non-medical collection accounts with zero balances
  • Those are exempt
  • If the aggregate amount of  unpaid non-medical collection accounts is under $1,000 borrowers can have credit disputes
  • However, if the total amount of unpaid non-medical collection accounts are over $1,000, borrowers need to retract all of the credit disputes before mortgage application and approval process can proceed
  • The mortgage process will be in suspense status until the credit disputes are retracted

What Happens When Retracting Credit Disputes?

One of the major issues with retracting credit disputes during the mortgage application and approval process is that once the credit disputes is retracted, the chances are credit scores will drop.  How much will it drop?  It depends on each individual consumer.  I have seen credit scores drop from 2 points to 80 points.

Credit Repair is highly recommended but credit repair during mortgage process can create a lot of stress. This holds true especially if credit scores drop after retracting credit dispute.  Home buyers planning on buying a home in the future and feel they need to start a credit repair program, do it way before starting the mortgage application and mortgage approval process.

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