This guide covers how credit repair can affect the mortgage process and cause a mortgage loan denial. There are several things to keep in mind with how credit repair can affect the mortgage process. Many people want to know the fastest way to repair credit and improve credit score to qualify for a mortgage. Homebuyers need to consider the dangers how credit repair can affect the mortgage process and jepardize getting a home. Credit repair is not necessary to qualify for a mortgage.
Credit repair can do more damage than good. Whatever a credit repair can do, you can do it yourself. Older derogatory credit tradelines will do little to no impact on your credit scores.
Outstanding collections, charged-off accounts, and late payments that are two years old or older has little to no impact on your credit scores. Borrowers cannot have credit disputes during the mortgage process. All credit disputes, with the exception of exempt disputes, need to be removed. Credit disputes during the mortgage process can backfire on borrowers.
Credit Disputes Without Documentation
Repairing credit and improving credit scores can be done but it takes time. However, the errors on your credit report needs to be legitimate. You cannot just blindly start disputing bad credit without supporting documentation.
Getting bad credit can be done literally overnight. However, to repair credit and improve credit score is like making a New Year’s resolution.
Consumers need to make a commitment to repair credit and improve credit score and need to be consistent and not get discouraged because it does take time and effort. It is like going on a diet. There are struggles not to eat favorite foods and see little to no results and eventually give up. In this article, we will cover and discuss how credit repair can backfire during the mortgage process.
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Do Credit Repair Companies Work?
There are thousands of credit repair companies throughout the United States. The problem I run into is finding a reputable credit repair company. I am sure there are hundreds of credit repair companies who are reputable and I am always in a search for them.
Credit disputes without proper documentation will create credit disputes on your credit report. Credit bureaus will not delete the derogatory tradelines without supporting documentation.
I have worked with a few credit repair companies that are absolutely outstanding and reputable before. Unfortunately, the credit repair companies that I have worked with before either sold their business or the owners have changed careers.
Credit Repair Does Work
A credit repair company’s main objective is to repair credit and improve credit scores. They use loopholes in the credit rules and regulations to get negative items off credit reports. I have seen bankruptcies, foreclosures, judgments, and tax liens get deleted off credit reports. However, just because the items are deleted does not mean that the bankruptcy, foreclosure, judgment, and tax liens are off credit record.
Borrowers who are applying for a mortgage loan or any other loan and are asked a question concerning whether or not they had a previous bankruptcy, foreclosure, judgment or tax liens.
Borrowers must tell the truth. In the event, if a mortgage applicant has judgment and state they do not have a judgment on a mortgage application because it is not on credit report, they are committing. Deleting those derogatory information works only with collections, late payments, and charge off accounts.
How Can Credit Repair Can Affect Mortgage Process and Loan Approval
Consumers who intend on purchasing a home or an automobile in the near future, they will need a fairly clean credit report and somewhat of a decent credit score to qualify.
All lenders do a third party national public records search so deleting judgments, bankruptcies, foreclosures, short sales will not work because it will get discovered with a public records search.
The cleaner the credit report and higher credit scores are, the better the chances to get a mortgage approval or loan approval. The cleaner credit report and higher credit scores are, the better the interest rate will be.
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Tips on Boosting Credit Scores and Avoid How Credit Repair Can Affect The Mortgage Process
We will be discussing more on how to repair credit and improve credit scores in future blogs. The first step consumers need to take is to monitor credit report regularly and make sure there are no errors on credit reports. There are three credit reporting agencies; Transunion, Experian, and Equifax.
Check for any errors on credit report. Need to write a dispute letter to each of the three credit reporting agencies. Each of the three credit reporting agencies has 30 days from receiving a letter to respond to credit dispute.
The credit reporting agency contacts the creditor who is reporting you. That creditor needs to confirm that the debt they are reporting is valid. If the creditor does not respond to the credit reporting agency within the 30 days, the credit reporting agency needs to delete the disputed item. Or they are in violation of the Federal Credit Reporting Act (FCRA)
Dangers Of Credit Repair During Mortgage Application Process: Credit Disputes With Balances Are Not Allowed
Homebuyers or homeowners needing refinance who are undergoing credit repair either prior or during the mortgage process need to make sure they understand the danger of credit repair during the mortgage application process.
Credit Disputes are not allowed on the following:
- Non-Medical Collections
- Late Payments
- Charge offs
- Tax Liens
- Judgments
Disputing Credit During Mortgage Process
One of the dangers of credit repair during the mortgage application process is that credit disputes are not allowed with certain exemptions: Mortgage borrowers can dispute derogatory items with zero balances or charge-offs. But if borrowers dispute a collection account or credit account that still has an outstanding balance with a total aggregate amount of $1,000 or more, the mortgage application process will be suspended until the dispute is removed/retracted and/or paid off in full and reflected on their credit report. This normally takes time and will delay the mortgage process anywhere from 30 to 90 days unless a rapid rescore is done, which can be costly.
Dangers Of Credit Repair During Mortgage Application Process: Retracting Disputes Will Lower Credit Scores
Another danger of credit repair during the mortgage application process is that retracting credit disputes can plummet credit scores where they can not qualify for a mortgage due to not meeting the minimum credit score requirements. If borrowers retract a credit dispute on a recent collection account with an outstanding credit balance, the chances are that credit scores will drop. Depending on how many disputed items are active, credit scores can drop significantly once disputes are retracted from the credit reporting agencies. Another risk factor is that the creditor might not let consumers retract the dispute. If this is the case, the mortgage application process will be delayed indefinitely until the disputed items are settled.
Dangers Of Credit Repair During Mortgage Application Process: Why Are Credit Disputes Not Allowed
The main reason that credit disputes are not allowed during the mortgage process is because of the following reasons:
- When consumers dispute any derogatory item such as an outstanding collection account, charge offs, late payments, tax liens, judgments, the credit bureaus automatically takes out the derogatory credit item from their credit scoring formula
- What this means is even though the derogatory credit item remains on the consumer credit reports, the negative factor is excluded from the credit scoring model so the scoring formula will automatically take out the negative
- What this does is the credit formula will treat it like the negative item does not exist and the consumer credit scores will go up
- How much does it increase?
- This depends on how recent the derogatory is
- For example, a recent late payment on a car loan can drop over 50 points from a consumer credit score
- Disputing the late car loan payment, the credit bureaus will negate the recent late payment so the consumer credit scores will go up 50 points
- The same goes for outstanding collection accounts and charge off accounts
- Disputing outstanding collections and charge offs will increase consumer credit scores
The above is the main reason why credit disputes are not allowed during the mortgage application and approval process.
Here is a link on how to RETRACT CREDIT DISPUTES TO QUALIFY FOR MORTGAGE
Dangers Of Credit Repair During Mortgage Application Process: Exempt From Credit Disputes
There are certain exemptions on credit disputes on FHA and VA Loans:
- Medical Collections are exempt from credit disputes
- Non-medical credit disputes with zero balances
- Non-medical collections where the aggregate total (sum of all outstanding collection balances) are under $1,000
With the above, does disputing the above credit scores? The answer is yes. Disputing medical collections, especially if it is a recent medical collection account posted on credit bureaus, the credit reporting agencies will automatically negate the derogatory credit item from the credit scoring formula. The negative item will still remain on the credit report the verbiage “consumer disputes this account: Not resolved” will remain. However, if the dispute comes back as verified and the credit bureaus will state that dispute resolved, the consumer credit scores will then drop again because the credit reporting agencies will re-factor the negative item back in the credit scoring formula.
Deleting Public Records Off Credit Report To Qualify For Mortgage
Many borrowers, credit repair companies, and even loan officers think that removing public records from credit reports will qualify borrowers for mortgages.
Deleting the following works:
- Late Payments
- Collections
- Charge Off Accounts
- Repossessions
- Mortgage Late Payments (Only if it is longer than 12 months old because all lenders will do a verification of mortgage where they will contact existing lenders of borrowers to see if the borrower has been timely in the past 12 months)
There is no way of finding out whether or not the above is valid or not if it is not on the borrower’s credit report. The above are not public records. However, on public records, all lenders will do a third-party national public record search and all public records will get discovered even though it is not on the borrower’s credit report.
Here are examples of public records:
- Chapter 13 Bankruptcy
- Chapter 7 Bankruptcy
- Foreclosure
- Deed in Lieu of Foreclosure
- Short Sale
- Judgments
- Tax Liens
- Delinquent federal student loans
- Court-ordered judgments and/or orders such as child support, alimony, etc
There are many credit repair companies, and, unfortunately, loan officers, that are under the assumption that deleting public records will solve a borrower’s problem in qualifying for a mortgage. This is absolutely not the case.
