When Credit Repair Does Not Work For Mortgage Qualification

Cases When Credit Repair Does Not Work For Mortgage Qualification

Credit Repair is when a consumer does a credit dispute on negative items to the three major credit bureaus in hopes of deleting the negative credit items off their credit report . The three major credit reporting agencies are the following:

  1. TransUnion
  2. Experian
  3. Equifax

Each credit bureau issues a consumer a credit score. Mortgage companies will pull credit from all three credit reporting agencies and will use the middle of those scores as the qualifying credit score for the borrower. If there are two borrowers, mortgage lenders will use the lower of the two borrower’s middle credit score as the credit score to qualify the mortgage loan.

Credit Repair does work and derogatory items can be removed, whether the credit item is correct or not. There are many credit repair companies who know the tricks of the trade and can just about remove everything. Derogatory credit items such as outstanding collection accounts, charge off accounts late payments accounts, judgments, tax liens, bankruptcies, foreclosures, deed in lieu, and short sales can all be removed one’s credit report and can stay off their credit report indefinitely. Most mortgage loan officers help borrowers who do not qualify due to low credit scores or derogatory credit scores with referring them to a credit repair company. Whether a person is applying for a mortgage or not, they should always review their credit report and check for errors and make sure that their credit report is correct. Good credit is extremely important not just when it comes to applying for a home loan, auto loan, or other types of credit but it is also important for other reasons. Insurance companies use an applicant’s credit history and credit scores to determine their risk level. An insurance company can deny a person insurance for not meeting their minimum credit scores. Insurance companies will decide the premium of an applicant by the applicant’s credit scores. Lower credit scores means higher risk which means higher insurance premium for the insurance applicant. Employers also run credit and will decide the character of the candidate by not just the credit score of the applicant but will also review the credit history of the job candidate in determining whether they are fit for the job and/or a job promotion. Mortgage regulators will pull credit on every single mortgage loan officer candidate applying for state licenses and decide whether or not the applicant is financially responsible just by reviewing the candidate’s credit scores and credit report. Many states will go through an intense review of a loan officer license application if they have credit scores below 620. You can become a loan officer with bad credit , however, mortgage regulators want to see that you have had re-established credit for the past 12 months. There are certain states like the state of California that they do pull credit on a loan officer license applicant, however, they do not even look at it. There are other states like Texas, Wisconsin, and Connecticut where they are extremely anal and that will deny your NMLS state mortgage license if they see any collection accounts, charge off accounts, or judgment on your credit report without a written payment agreement. The state of Wisconsin is so ridiculous that even if you have a written payment agreement with a creditor and/or collection agency, if the amount of the monthly written payment agreement is not at least 5% of the outstanding unpaid balance, then they will not honor it.

Does Credit Repair Work?

Almost every consumer has heard of credit repair and many consumers with bad credit go through credit repair. There are many do-it-yourself credit repair guides where just about anyone can repair their own credit by themselves by disputing derogatory credit to the three credit bureaus as of the accuracy of the reported derogatory credit item. Once a consumer dispute a derogatory item, the credit bureau needs to contact the creditor and relay the disputed item and the creditor has 30 days to respond with the validity of the disputed credit trade line. If there is no response by the creditor, the credit bureaus needs to delete the disputed credit item. Many consumers hire credit repair companies for credit repair. Credit repair does work and I have personally seen late payments, collections, charge offs, repossessions, foreclosures, bankruptcies, and judgments deleted off one’s credit reports. Credit repair does work and any type of derogatory items can be deleted off consumer’s credit reports. Unfortunately, there are times when credit repair does not work for mortgage qualification.

Case Scenarios When Credit Repair Does Not Work For Mortgage Qualification

Most loan officers have referral partners such as realtors, attorneys, insurance agents, home inspectors, and credit repair consultants. Many loan officers will refer borrowers who do not quite qualify for a home loan to their preferred credit repair company and most credit repair companies are successful in fixing the borrower’s credit scores. Credit repair does take time and can take several months. Borrowers who need a mortgage sooner than later should not enroll in any credit repair program because mortgage lenders will not allow any borrowers who has active credit disputes during the mortgage process on charge off accounts and non-medical credit disputes with an outstanding balance: If the total outstanding non-medical collection balance is greater than $1,000, all credit disputes needs to be retracted one’s credit report in order for the mortgage process to proceed. Credit disputes on non-medical collection accounts with zero balances are allowed. Credit disputes on medical collection accounts with outstanding accounts are allowed no matter how much the outstanding balance amount is. Credit disputes on charge off accounts are not allowed. Credit disputes is a perfect example when credit repair does not work for mortgage qualification.

A mortgage loan originator should never issue a pre-approval letter to a home buyer if the borrower has any credit disputes. Many loan officers will issue a pre-approval letter to borrowers with one or two credit disputes and instruct the borrower to have the credit disputes retracted while they shop for a home. However, this practice can be extremely dangerous because when a consumer disputes a derogatory credit item, the credit bureaus automatically discount the negative credit item from its scoring formula so the negative credit item is not counted when the bureaus are calculating the credit scores of a consumer. Once the credit dispute is retracted, the negative credit item is factored back in to the credit scoring formula of the borrower and the consumer’s credit scores drops. A borrower who met the minimum credit score requirements may no longer qualify for a home loan once the credit disputes are retracted because their credit scores dropped. How much of a drop? If the credit item is a recent derogatory item, then the drop can be significant. If it is an older derogatory credit item, then the drop may not be as significant.

Deletions Of Public Records Such As Judgments, Bankruptcies And Foreclosures

Deletions of outstanding collection accounts, late payments, repossessions, and charge off accounts often help borrowers improve their credit scores and there is no way of finding out by anyone once the negative item is removed one’s credit report. However, if you have public records removed, you will have issues when you are going through the mortgage process. All mortgage lenders will do a third party search through Lexis Nexis and/or Data Verify which is a nationwide third party public records search. This is a perfect example when credit repair does not work for mortgage qualification. There is a two year waiting period after Chapter 7 Bankruptcy to qualify for a FHA Loan. There is a three year waiting period to qualify for a FHA Loan after a short sale, foreclosure, and deed in lieu of foreclosure. If you have your bankruptcy, foreclosure, deed in lieu of foreclosure deleted off your credit reports and think that you will qualify for a mortgage loan because your credit report does not show it, you are mistaken. Any public record, including tax liens and judgments, will get discovered during the third party public records search and there is no way escaping it.

Credit reports do contain errors and nothing is wrong with going through a credit repair program. Mortgage companies cannot find out about collection accounts, charge off accounts, and late payments that has been deleted off your credit report, however, any public records that has been removed off your credit report will get discovered. Borrowers should also not start a credit repair program if they plan on applying for a mortgage in the near term because credit disputes are not allowed during the mortgage process. Retracting credit disputes will definitely drop one’s credit scores, but more importantly, withdrawing a credit dispute can take time where it can really delay a borrower’s ability to proceed with the mortgage loan process.


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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