Bad Credit Home Loans
Myths about bad credit, and why getting the wrong advice can end up costing you money and lost time. This article is geared towards looking for Mortgage financing when you have challenging credit issues and what Mortgage lenders are looking for and will require in order to close your Mortgage loan.
I have been in lending for over 10 years and I have seen more credit reports and heard more bad advice stories than I can remember. Let me help clear up a few myths and unknowns about cleaning up bad credit.
1. Being told you have to DISPUTE items on your credit report: The truth is disputing items on your credit report is a waste of time, let me tell you why. If you have an item on your credit report and you know the item belongs to you there is no reason to dispute it. A dispute is only going to send a message to the credit bureau that placed the information on the credit report to investigate it and notify you if the information is accurate. Tran union, Equifax or Experian are the three agencies that you would be working with at this time and if you already know the item is yours why dispute it. It will just delay getting the item resolved.
2. When to pay or not pay off any collection items: The myth is they all have to be paid and you must settle all collections in full. The truth is each collection item should be reviewed separately. If the collection item is over 12 months old and is small you may be best off to leave the item alone. If the item is a medical collection and is over 12 months old again leave it alone. Being required to pay off any bad debt that is old or a medical item should be request by the underwriter who is going to underwrite and close your Mortgage loan. Why try to guess what the underwriting is going to ask for? Keep your money in your pocket until you are told it is a requirement you settle the debt. If you are asked to pay off an item then I suggest you call the debtor yourself and try to negotiate a payoff directly. Although there are many companies that offer to get the debt settled for less the truth is they cannot negotiate any better than you can, and they all charge a fee for their service. You can get the same result from one call all by yourself and keep the extra cash in your pocket.
3. Have you been turned down for a loan because your FICO score was too low and you were told there is no way to increase it? : Let me start out by saying I am sorry you were not talking to someone that could help you and the myth is most people that claim to be the expert usually are not. The truth is your FICO score is constantly changing almost every month and there is almost always something that can be done to increase your scores or lower your scores, you just need to get to the right person to give you the right advice. Look at your credit report. Do you have a revolving line of credit, something like a credit card that you payoff and then charge on the following month? That is a revolving line of credit. If that trade line is maxed out or over 40% of the high balance you can pay it down and your scores will go up…Guaranteed! I know the actual number of points can vary and that is where I can be of more assistance to you, or in some cases the bureaus may be willing to advise you. How about this example; have you ever been told to pay off a collection and your scores will go up, just to find out they went down? Yep, I hear that one a lot. Here is what you must know if you’re going to pay off a trade line that is LESS than 12 months old. If you want your scores to increase with this payoff you must get the item REMOVED from your report entirely. Just a zero balance will not help your credit scores to increase. I have, and as I just stated, in some cases the scores end up dropping. Why? Because the item was new and a new item less than 12 months old will give little leverage to your FICO score numbers. The item must be over 12 months old to add any points.
I hope this was helpful and I hope you will reach out to me with more questions.
Thank you for reading.
Senior Loan Officer
Guild Mortgage Company
4340 W Ina Road
Tucson AZ 85741
NMLS# 203712 LO# 0915924
NMLS ID# 3274