Monday, March 25, 2013

Should I Use A Credit Repair Company to Help Get A Mortgage

Three Steps to Do It Yourself Credit Rating Repair

There is absolutely no doubt that your credit score is going to effect the mortgage interest rate you are offered by a potential lender, the other terms of any mortgage, and even whether or not you can get a mortgage without a huge down payment.  In today's market place you will need at least a 620 rating to be considered for most mortgages and a 680-700 or higher for the best interest rates, and a 760 will give you lots of negotiating power.

There is much wisdom in doing some credit score tweaking prior to applying for a mortgage.  A few points can make a big difference in the entire process.  Here is another even more critical mortgage proverb worth noting:  Don't change your credit habits once approved.  Don't borrow heavily on existing accounts, don't add new credit or loan accounts, don't pay off or close any accounts.  Any such activity could disrupt the process, extend the time for closing, or even result in the lender backing out of the commitment.  They leave themselves plenty of room to do so.

I'm 20 point short of where I need to be.  Should I hire a credit repair firm?


One should never say never, but in almost no case should you hire a credit repair company.  There are several reasons for this:
  • The process is easy to do yourself
  • Many credit repair companies are not reputable 
  • Even some of the best credit repair firms will suggest fraudulent practices
  • 3rd party reporting has shown that most of these companies do almost nothing to help
  • The fastest talking companies will try to charge $800 - $3000 or more - up front.
There are dozens and dozens of online helps for doing this yourself.  There are also books on the subject.  However, even some of the techniques offered by these free blogs or articles are designed to distract or abuse the credit system in ways that could get you in trouble.  As my lawyer friends like to say, "If it smells, looks, and feels like it is illegal, it probably is."

Here are things to watch out for according to Linda Duell at MoneyTalks News:
Linda Doell at MoneyTalks News

"If you follow a credit repair company’s advice and commit fraud, you might find yourself in legal trouble. It’s a federal crime to:
  • lie on a credit or loan application
  • misrepresent your Social Security number
  • obtain an EIN from the IRS under false pretenses
Another common technique in credit repair is to dispute every negative item within a credit report. By law, disputed entries must be removed from your credit history while under investigation – a process that typically takes a few weeks. While the negative entries are being investigated and aren’t showing up, you quickly apply for new credit.
The problem: Challenging negative entries you know to be accurate in order to temporarily appear to have better credit is also fraudulent."

Here is How You Can Do Credit Repair Using the DIY Method


Before you start the process, you need the information.  Linda provides you with 4 links that will get you everything you will need to get the job done.

"The first step is to look at the information that’s in your credit report right now. Since different CRAs may keep different information, it’s a good idea to check with the three biggies: EquifaxExperian, and TransUnion. You can get one free credit report a year from all three by going to"

Find and Fix any Mistakes


It has been in the news of late that at least 20% of all credit reports have consequential errors in them.  Not sure about your job, but if most folks would be fired if they were messing up 20% of the time!  So go through these reports to see if you can identify and errors.  Scrutinize every negative entry.  Is it possible that you would have been late on that gas card?  Do you recall having a collection call regarding your car loan?

If you find mistakes of any kind, you can use a form found on the FTC website that will help you provide the needed information for dealing with the credit agency that made the error.  The FTC form is designed to give you the best chance to get action from the agency.

Deal with the Actual Issues Through Negotiation


I can't make the recommendation any stronger or more clearly than Linda Doell does in her article.  But to save you the click, here is the detail and the link if you like. 

Eventually negative information in your history will go away by itself, but not for a long time – seven years, unless it’s a Chapter 7 bankruptcy, in which case it’s there for 10.
But here’s the good news. You don’t have to wait years for negative stuff to die a natural death. You can actually get rid of negative things on your credit report anytime, at least theoretically.
There’s no law that says creditors have to report delinquencies or other negatives. In fact, they don’t have to report anything. And anything that has been reported can be removed at the whim of whoever reported it in the first place. And that’s the secret to fixing your credit history.
A friend of mine had a slew of negative stuff in her credit history, all the result of a time in her life when she was a lot less responsible than she is today. She’s been patiently working for a number of years, off and on, to restore her credit history to pristine condition. How? She simply writes a letter to each creditor that reported a negative item and asks them to remove it. This is a particularly effective technique in either of two situations: when you’re still a customer of the creditor or when you have an unpaid balance that you can negotiate with. Following is a letter she wrote to a credit card company that she still deals with:
August 19, 2010
Sally Sample
123 Maple Street
Anytown, USA 12345
BankCard Services
PO Box 12345
Wilmington, DE 12345
Regarding: MasterCard account #1234-4567-8910
Dear People,
As you know, I have been a loyal customer of your company for more than seven years. Over that time period, I have received many offers from other companies for credit cards with lower interest rates or other terms that could have been more attractive, yet I’ve remained with your company.
I recently obtained a copy of my Equifax credit report and was dismayed to learn that your company has reported that I made two late payments four years ago. I’m writing today to ask you to have this negative information removed from my credit history. Having become conversant with the Fair Credit Reporting Act, I’ve learned that this is easily accomplished.
As you are well aware, my record of paying on time is unblemished with those two exceptions. Since even one negative item in my credit history is one too many, please repay my loyalty and responsibility by helping me have these items removed.
Thank you in advance for your timely response. I look forward to continuing our mutually beneficial relationship for many years to come.
Sally Sample
Believe it or not, this simple letter, or a variation thereof, worked for her in some, but not all, instances. Still, it doesn’t hurt to try.
If you have an unpaid balance, you might also use that to negotiate. You can offer to settle the debt completely by paying part of what’s owed, along with getting any and all negatives removed from your credit history. Crucial, however: Get a written agreement that it’s going to occur before you pay. Some creditors will happily tell you anything to get your money, then refuse to follow through on their promises. Make notes of any phone calls, including dates, times, and names. And always, always get everything in writing.
These examples rely on using leverage – being a current customer or owing money – to negotiate from a position of strength. How can you get negative items removed when you’re not a customer and don’t have an unpaid balance?
Well, you can and should still write your creditors. Simply build a case that you shouldn’t have to suffer for years simply because you made a few mistakes, especially since you’re now a new, responsible citizen. If you had problems that caused the delinquencies way back when (medical bills, lost job, etc.), don’t be shy about playing a little verbal violin music.
While it’s sometimes hard to believe, the readers of these letters are actual human beings just like you, which means they’re susceptible to the powers of persuasion. And you have nothing to lose, except maybe a stamp and a few minutes.

Explaining Isn't the Same as Making an Excuse

Some folks with impeccable credit for 20, 30, 40 years or longer, have one or two tough patches.  And unfortunately, sometimes those tough times come just when you need all the credit score points possible to qualify for that mortgage.

Therefore, if you have done all you can to erase all the credit issues on your report, and you're still a few points shy of where you need to be, try writing out a short, clear, non-defensive, explanation.  You are unlikely to win any concessions if you were lazy, spent all your money on gambling, or forgot you owed the IRS a huge amount.  On the other hand, if you were unemployed for a short period, had a medical issue, or some type of emergency that can be explained, go for it.

Believe it or not, you can apply for a mortgage within two years of a short sale, foreclosure, or even a bankruptcy.  So some lenders will listen compassionately and reasonably to your circumstances that might have been unusual in light of everything else they can see on your application.

Should I Ever Consult a Credit Repair Company?

There are firms who are reputable and that will do for you what we have outlined above.  They will potentially have some contacts and methods that will be better than you could do on your own.  If that is the case, they will have lots of satisfied customers.  Ask to speak to ten!  Not three.  Everybody has three references they can use.

How long have they been in business?  Are they listed by the BBB?  Do they belong to the BBB?  Is there any negative chatter about them online in places like Google+, or
If they pass all of those tests, by all means take a risk.  You may hate doing the kinds of effort outlined here on a DIY basis, and are willing to pay someone else to do so.  Then give us a call to discuss your mortgage.  We will help you through the process.

If you liked this article, may we also recommend.  Your Real Credit Score!  Don't Be Fooled.

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