This BLOG On Credit Repair To Qualify For Mortgage Loan During Loan Process Was UPDATED And PUBLISHED On November 25th, 2020
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 if you need to correct errors on your credit report
- However, if your intention is hiring a credit repair company to dispute valid derogatory credit tradelines, you will do more damage than good
- But there are dangers in doing Credit Repair To Qualify For Mortgage Loan
- Credit Disputes are not allowed during the mortgage process
- Do not start any credit Repair To Qualify For Mortgage Loan unless you first consult with a loan officer
- Credit repair can do more damage than good during the mortgage process
In this article, we will discuss and cover Credit Repair To Qualify For Mortgage Loan During Loan Process.
Credit Repair To Qualify For Mortgage Loan Can Often Do More Damage Than Good
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
- This is 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
- However, outstanding collections, charged-off accounts, late payments and other derogatory credit tradelines older than two years old have little to no impact on credit scores
- You an do credit disputes if and only if you have documentation proving the creditor and/or credit bureaus made a mistake
- However, just disputing every derogatory credit is very dangerous and you will not be successful
- Bad credit tradelines gets removed from your credit report in 7 years after the date of last activity
In this blog, we will discuss the dangers of Credit Repair To Qualify For Mortgage Loan During The Loan Process.
Credit Repair To Qualify For Mortgage Loan: What Is Credit Repair?
Credit repair is deleting derogatory items off credit report through credit disputes.
- Once consumers have a recent late payment 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 the credit reports
- As time goes by, credit scores that dropped because of the derogatory will naturally improve
- However, derogatory credit tradelines may not look good on credit report and stays on credit report for a period of 7 years
- It is fine for derogatory credit tradelines to remain on credit reports
- Lenders and other creditors will understand periods of bad credit happens to the very best of us
- As the derogatory credit tradelines ages, creditors will ignore it and your credit scores will not have any negative impact
- Bankruptcies stay on credit report for 10 years while Chapter 13 Bankruptcy remain on your credit report for 7 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, judgment creditors can renew judgments for another ten years after the 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
- Removing credit disputes will lower credit scores
- Removing bad credit makes your credit profile looks cleaner and consumers get a head start in getting it removed before the 7-year waiting period
- However, you cannot have credit disputes during the mortgage process
- When you dispute a derogatory credit tradeline, the credit bureaus will remove the negative factor from their credit scoring model
- Therefore your credit scores will go up when you dispute anything
- However, when you remove a credit dispute, the credit bureaus will re-enter the negative factors of the derogatory credit tradeline
- Therefore, if you remove the credit dispute, your credit scores will drop because the credit bureaus factored the negative scoring formula to your credit report
- Medical credit disputes are exempt
- Medical credit disputes with zero balance are exempt
- Any non-credit disputes on non-medical collections that are older than 24 months from the date of last activity are exempt
- If you have non-medical disputes from creditors that the aggregate total are less than $1,000, they are exempt from removing the disputes
All pre-approvals issued with credit disputes are null and void. Credit scores with credit disputes does not reflect the true credit scores of the borrower.
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. Late payment after bankruptcy, foreclosure, short sale, deed in lieu of foreclosure is considered a second offender. Many mortgage companies will not accept borrowers with late payments after BK, Foreclosure, Short Sale.
- Late payments are next to impossible to get rid of through credit repair
- Although credit scores might not improve, it is wise to get the late payments after a bankruptcy and/or foreclosure removed off the credit report if at all possible
- This can be done by calling the creditors and asking them for a one time forgiveness
- It may not work but it is worth a try
If you have late payments after bankruptcy and/or foreclosure, the best thing to do is getting new secured credit cards to offset the late payments. Get three to five additional secured credit cards with at least a $500 credit limit. Never be late and monitor your credit report. Get signed up with a third-party credit monitoring service like Credit Karma.
Establishing New Credit Will Improve Credit Scores
If intentions are 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 the credit score by at least 20 points
- However, please keep the balance below 10% of the 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 A 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 for reporting erroneous items on consumer’s credit reports
If you have valid paperwork proving that the credit bureaus are reporting wrong information, the you can initiate a credit dispute with supporting documentation. If you are disputing valid derogatory credit tradelines without no documentation, you will be hurting yourself more than helping.