Credit Repair

Credit repair is the process of correcting errors or attempting to remove derogatory credit items that is reflected on your credit report.   One should definitely remove derogatory information that is on their credit report immediately as long as it is legitimate and this can be done in a short period of time.  However, many consumers try to remove legitimate derogatory information on their credit report.  This can be done but you need to know that credit repair during the mortgage process can end up hurting you instead of helping you.

How Does Credit Repair Work?

The three giant major credit bureaus are regulated by the federal government.  Transunion, Experian, and Equifax are the big three credit reporting agencies.  There is no doubt that credit reporting agencies make mistakes in reporting inaccurate information on consumers.  An error on a consumer’s credit report can plummet a consumer’s credit scores which can cause higher interest rates on credit and loans for the consumer.  Every consumer should check their credit report periodically for errors and make sure that they correct the errors by disputing the errors to all three credit reporting agencies.  If you have valid proof documenting that the derogatory credit item or any credit item contains inaccurate information, you need to write a letter along with the proof to all three credit reporting agencies.  Make sure you document and keep a copy of all of your correspondences between you and the credit reporting agencies.  You should send all mail via certified mail.  Once the credit reporting agencies gets receipt of your credit dispute, they have 30 days to correct the error.

Removing Derogatory Credit That Belongs To You

Many people hire credit repair companies to remove derogatory credit items off their credit report.  There are thousands of credit repair companies in the United States that specialize in removing negative items off one’s credit report.  If you have recently filed bankruptcy or recently had a foreclosure, it is next to impossible to remove a fresh derogatory credit item off your credit report.  Anything a credit repair company does, you can do it yourself.  Most credit repair companies use the credit dispute technique in trying to delete a derogatory item.  Pretty much, the credit repair company will send dispute letters to the credit bureaus stating that the derogatory credit item does not belong to you.

Credit Dispute

Even if the derogatory credit item is yours,  each of the three credit bureaus need to contact the creditor who is reporting your derogatory item and that creditor needs to respond validating their claim that the derogatory credit item is valid and your dispute is not valid.  If they provide documentation and/or proof that the derogatory credit item belongs to you, the derogatory credit item stays on your credit report.  If the creditor does not provide proof or does not respond, then each of the three credit bureaus need to delete the derogatory credit item off your credit report by law.  The credit bureaus will then send you a copy of your new credit report stating whether the disputed credit items has been deleted, or whether it will remain on your report because the creditor verified the disputed item.  This process is repeated over and over again until the derogatory credit item is removed.  What credit repair companies are betting on is that the creditor will one day not respond back to the credit bureaus and due to this technicality, the credit bureaus will eventually delete the derogatory item.

Removing Derogatory Credit Items Off Your Credit Report

This technique of disputing derogatory credit items does work and there are relentless credit repair companies that will act on behalf of their credit repair clients and do a great job.  However, remember that fresh newer credit derogatory items are extremely difficult to delete because the creditor has the delinquent account readily available to them.  Older derogatory credit items are easier to have it deleted because many creditors sell charge offs or aged delinquent credit accounts for pennies on the dollar.

Derogatory Deletion And Impact On Credit Scores

If you can get a recent late payment or derogatory credit item removed or deleted from your credit scores, your credit scores will sky rocket up.  However, it is almost next to impossible to get a derogatory credit item or late payment that is less than one year old removed from your credit report.   The older your credit derogatory item is, the easier it is to have it deleted from your credit report.  However, older derogatory credit items have very little or no impact on your credit scores.  Most times it is a waste of money in hiring a credit repair company to get derogatory items older than two years old removed from your credit report because it is too old to have any positive impact in boosting your credit scores.  If your intentions of hiring a credit repair company is to qualify for a residential mortgage loan, please think twice.  Mortgage lenders do understand that people have periods of financial distress and that their credit scores can suffer during periods of unemployment, medical issue, or divorce.

Home Loan With Bad Credit

Home buyers can qualify for a home loan with bad credit as long as they have been timely on their payments for the past 12 months.  You can have prior derogatory credit and open collection accounts and still qualify for a residential mortgage loan without having to pay off the old collection accounts.  For those who have recently filed bankruptcy or had a foreclosure should start re-establishing their credit by getting several secured credit cards instead of spending their money on hiring a credit repair company.

Credit After Bankruptcy And Foreclosure

A bankruptcy and/or foreclosure will plummet your credit scores by almost 200 points but this drop is not a permanent drop.  Your credit scores will gradually increase over time and by getting new credit such as 3 to 5 secured credit cards, it will speed up improving your credit scores.  Each secured credit card after you filed bankruptcy or after a recent foreclosure should boost up your credit scores by at least 20 or more points.  Your credit scores will gradually improve as your payment history on your secured credit cards ages.  I have seen people’s credit scores at 700 FICO and higher just over a year after a foreclosure and/or bankruptcy just by them getting 3 to 5 secured credit cards.

Credit Disputes During Mortgage Application Process

One of the worst things you can do is dispute a derogatory credit item with a credit balance during the mortgage application process.  You cannot have a credit dispute with a credit balance of over $1,000 during the mortgage approval process.  There is exemptions on medical collections but if you have a pending credit dispute with any credit bureaus during the mortgage application process, the mortgage application process will be in suspense until that credit dispute is retracted.  By retracting the credit dispute, your credit scores will drop.  Any credit dispute that gets retracted will affect a consumer’s credit scores.  One recent credit dispute retraction from one of my clients has plummeted her credit scores by 80 points.  If you are planning on applying for a residential mortgage loan now, or in the near future, do not dispute any derogatory information.  Disputing a derogatory information if you are intending on applying for a residential mortgage loan in the near future will hurt your chances of getting a mortgage loan.

Gustan Cho

www.gustancho.com

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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