The Dangers Of Credit Repair To Qualify For Mortgage Loan

This BLOG The Dangers Of Credit Repair To Qualify For Mortgage Loan Was UPDATED On July 17, 2017

Millions of Americans have bad credit due to the financial meltdown of 2008. Everyone heard of credit repair. Credit Repair is a big business and many consumers get mailers from credit repair companies. Nothing is wrong with hiring a credit repair company but there are dangers in doing Credit Repair To Qualify For Mortgage Loan. Credit Disputes are not allowed during the mortgage process. There are many instances where Credit Repair To Qualify For Mortgage Loan can do more damage than good.

  • I know hundreds of folks who have bad credit because they fell behind in paying their bills due to loss of business, layoffs, or situations like divorce or medical issues. 
  • Others have filed bankruptcy, had a foreclosure,  fell behind in paying their taxes so had tax liens, or fell behind on their payments.

What Is Credit Repair?

Credit repair is deleting derogatory items off credit report through credit disputes.

  • Once consumers have a recent late pay on their credit report, it will drop scores by at least 30 points or more. 
  • However, as time goes by, the late payment has little or no effect. 
  • Late payments, collections, charge offs, bankruptcy, foreclosure, and other derogatory have little or no impact on credit scores after 2 years. 
  • There is no need to delete older derogatory items off credit reports.
  • As time goes by, credit scores that dropped because of the derogatory will naturally improve. 
  • However, derogatory does not look good on credit report and stays on credit report for a period of 7 years. 
  • Bankruptcies stays on credit report for 10 years. 
  • Judgments will remain on credit report for 7 years although most judgments are good for ten years.
  • Statute Of Limitations on Judgments depends on each state.
  • Although it does not happen often, but judgment creditors can renew judgments for another ten years after statute of limitations.

Deleting Derogatory Credit Items Versus Credit Scores

Repairing credit might not necessarily improve credit scores.

  • Deleting an old derogatory will probably not improve scores, and many times, it will lower credit scores. 
  • However, credit profile looks cleaner and consumers get a head start in getting it removed before the 7 year waiting period.

Home Loan After Bankruptcy And Foreclosure

Mortgage borrowers who are planning on applying for a mortgage loan after a bankruptcy and/or a foreclosure, most lenders do not want a mortgage borrower to have a late payment after a bankruptcy and/or foreclosure. A late payment after bankruptcy, foreclosure, short sale, deed in lieu of foreclosure is considered a second offender and many mortgage companies will not accept borrowers with late payments after BK, Foreclosure, Short Sale.

  • If this is the case, I strongly recommend to dispute the late or derogatory credit item to all three credit bureaus or hire a credit repair company. 
  • Although credit scores might not improve, it is wise to get the late payments after a bankruptcy and/or foreclosure removed off credit report.

Establishing New Credit Will Improve Credit Scores

If  intentions is to improve credit scores, consumers need to establish new credit.

  • Mortgage applicants with low credit scores, the chances are very slim to be able to get an unsecured credit card. 
  • I strongly recommend that consumers get three secured credit cards. 
  • Each credit card should be able to boost credit score by at least 20 points. 
  • However, please keep balance below 10% of available credit limit.
  • Consumers will get the maximum optimal effect by having three revolving secured credit cards.

Installment Loans To Boost Credit Scores

Try to also get an installment loan such as an automobile loan.

  • It is difficult for someone with bad credit to get an automobile loan but it is possible putting a substantial amount down. 
  • Get a used car and put 50% or more down. 
  • For example, car buyers who have the cash to purchase a $3,000 car, consider putting $2,000 down payment and get a loan for $1,000. 
  • The interest paid is well worth the credit improvement this automobile loan will do.

Credit Repair Is Long Process

Whether consumers do credit repair themselves or hire a credit repair company, credit repair is a long process and cannot be done overnight.

  • It will take consumers months if not over a year to repair credit. 
  • Credit repair is a good thing for everyone to do but remember that credit repair does not necessarily improve credit scores. 
  • Consumers need new credit and active credit for credit scores to improve. 
  • Consumers can do both, delete derogatory items and establish new credit, that will be a winning combination. 
  • Please monitor credit report a few times a year and make sure there are no errors. 
  • Credit reporting agencies are known in reporting erroneous items on consumer’s credit reports.

Related> Mortgage Rates And Credit Scores

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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