Category Archives: Mortgage

Q&A: Mortgage shopping, forbearance, hard & soft inquiries

From a Speaking of Credit reader….

By Barry Paperno

Dear Speaking of Credit,
What is the best way to shop for a mortgage without getting too many hard inquiries?
Before you start, get your reports and FICO mortgage scores (Experian 2, Equifax 5 and TransUnion 4) from myFICO.com — the exact same scores most mortgage lenders use that are only available there. They will cost you about $60, but the inquiries won’t affect your score and you’ll know where you stand with lenders.

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Note to self: when time to try for refi, pay bills on time

This post originally appeared September 14, 2017 on CreditCards.com as “‘Q&A: Applying for house refinance soon? Don’t miss card payments

By Barry Paperno

Dear Speaking of Credit,
I have two credit cards – Kohl’s and JC Penney. I missed making the payment for two months in a row. Just never saw the bill and spaced out. I know, bad.

They sent the late payment notifications to the credit bureaus, which brought my credit score down. I paid the accounts off. How long will it take before my credit score will go back up?

I am also trying to refinance my house. Do you think this will cause them to deny the loan? I was working on getting it up. I had it up to 670; now it’s like 659. – Maryann

Dear Maryann,
At least you’re not offering any tired excuses when admitting to having simply “spaced out” on those two card payments for a couple of months. Who hasn’t done something similar and let a payment or two slip through the cracks at one time or another? Now it’s time to clean up the mess and get back on track toward a higher credit score.

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How a ‘deed in lieu of foreclosure’ can impact your score

This post originally appeared March 23, 2017 on CreditCards.com as “‘Deed in lieu: How it lowers your credit score, and what to do about it

By Barry Paperno

Dear Speaking of Credit,
I’m going through a deed in lieu, which is soon to go through. My credit score is approximately 605, give or take. I have bad marks on my credit report due to no payments on my mortgage. How will the deed in lieu affect my credit score? And for how long? – Darrell

Dear Darrell,
As the name implies, a deed in lieu of foreclosure (commonly known as deed in lieu) is an agreement that allows a homeowner to avoid foreclosure by voluntarily “deeding” – a fancy word for “turning” – over the property to the mortgage lender in return for being released from all obligations under the mortgage. The lender then sells the property to recoup the monetary loss, and the borrower is in the clear, both debt- and score-wise.

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Does mortgage preapproval affect credit score?

This post originally appeared August 18, 2016 on CreditCards.com as “How preapproved offers affect credit

By Barry Paperno

Dear Speaking of Credit,
I have been preapproved for a $40,000 mortgage. I have decided not to purchase a home at this time. Is it a bad idea to apply for a Costco credit card before I notify my bank that I will not be using the preapproval at this time? Or is it better to wait until I don’t have a preapproval on record. I have a 730 credit score. – Roseann

Dear Roseann,
Credit score-wise, whether you do or don’t notify the bank of your intention to forgo the preapproved mortgage loan at this time, you should have little to worry about. That’s because, in a sense, any score damage would have already been done by inquiries at the time of the preapproval credit checks. Here, we’ll take a look at how the two most common types of preapprovals – mortgage and credit card – affect credit scores.

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Need a quick 10 points to close on new house

This post originally appeared June 2, 2016 on CreditCards.com as “Just 10 credit score points shy of a mortgage

By Barry Paperno

Dear Speaking of Credit,
Hi. I’m 10 points away from closing on my new house. I have an old unpaid card that I can pay in full, but they refuse to remove it from my credit reports. If I still pay it off will it help or hurt me? – Melissa

Dear Melissa,
It looks like you’ve made a nice attempt at a “pay for delete,” whereby you offered to pay that old unpaid debt in exchange for the creditor or collection agency removing it from your credit reports. Yet, despite your likely frustration at their refusal, the card company or collection agency may have actually done you a favor by rejecting your request.

You’re probably thinking common sense would dictate that paying off an old unpaid debt couldn’t help but raise your score by at least a little, maybe enough for you to get those last 10 points and qualify for a mortgage. But credit scoring doesn’t rely on common sense. Sometimes paying off an old debt can help your score, however, there are no guarantees that doing so, or even getting the account removed entirely from your credit report, will provide you with those 10 points needed to close.

I’ll explain why this is so and suggest a couple of alternate ways to increase your chances of getting those 10 points as quickly as possible.

Account balances, credit limits, payments and any other dollar amounts on a credit report are only considered by the score when reported to the credit bureau within a recent timeframe. Otherwise, once the creditor or collection agency has stopped the monthly reporting of an account after a number of years – the most likely scenario with your old unpaid debt – that information is then ignored by the score for any credit utilization (balance/limit ratio) or other calculations that consider how much you owe.

For this reason, the amount of that unpaid debt may no longer be causing any damage to your score, only the fact that it has not been paid as agreed. And if that’s the case, then paying it off won’t earn you any additional points, though retiring that balance could prevent a future collection if the debt hasn’t already been assigned to a collection agency. It couls also prevent a court judgment if a lawsuit is brought against you for payment.

Where older derogatory accounts like this one affect your score most is by way of the Payment History scoring category that makes up 35 percent of your score. Here, the score looks at past due accounts in three major ways (in order of importance):

  • Recency: How long has it been since the most recent delinquency?
  • Severity: How many months past due did the account fall behind?
  • Frequency: How many accounts on the credit report show late payments?

Recency, the length of time since your most recent delinquency on any account, is the best indicator of how well your score is recovering. And despite knowing nothing else about your credit, the fact that it’s an old debt tells us that it is not likely to be having nearly as much of an adverse effect on your score these days as it used to.

Further, if your credit report includes any additional, more recent problems in your accounts, that old unpaid debt takes on even less importance to the point that a payoff or deletion isn’t likely to provide much, if any, help at all.

Now that we know what won’t help your score, what will?

If you carry substantial balances on any of your credit cards, you could gain those 10 points relatively quickly by taking the funds you might have otherwise applied to that old unpaid debt and instead paying your credit card – not loan – balances down. Reducing credit utilization on your credit cards will have a big, positive impact on your score.

If available, have your mortgage broker or lender submit documentation of those reduced card balances via the the “rapid rescore” process, a service available to mortgage applicants in which account information is updated on your credit report and included in your score within a few days rather than the usual 30 days or more.

But what if the balances have already been paid down?

Regardless of how good or bad your credit score may be, some points can be earned simply thanks to the passage of time. This is where the length of credit history scoring category that makes up 15 percent of your score comes into play. An important scoring calculation within this category is the average age of accounts (total number of months since the open date for each account divided by the number of accounts), where the longer the average age, the more points for your score.

Since longer-held accounts tend to raise the average age, and newly opened ones can lower it, you’ll want to avoid opening any new cards or loans for the time being. By maximizing your average age and other length of credit history measurements along with paying down any card debt, you’ll stand the best chance of gaining those 10 points (or more) in time to close on that new house.

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3 score-raising ways to mortgage approval

This post originally appeared July 23, 2015 on CreditCards.com as “Tips to boost a credit score enough to qualify for a mortgage.”

By Barry Paperno

Dear Speaking of Credit,
Hi, my husband and I are in a situation where we are now looking to buy a home. We have been approved for an FHA mortgage, however, he is a veteran and we are both trying to get approved for the VA loan. When our credit was last checked in May of 2015, my middle score was a 595 and his was a 611.

We were told to pay off all but $40 on a $300 credit card that was maxed out. In addition, we were told to add my name as an authorized user to the credit card to help improve my credit score. I was also told to use the credit card that I have and pay it off when the bill came so I did just that. Bought something for $100 and paid it when the bill came. Since I am 25 points away and my husband is 9 points away from qualifying for the VA loan, how likely is it that doing the things mentioned above that our credit score will improve to the numbers needed? — Dana

Dear Dana,
It sounds like you’re clearly on target toward obtaining that VA mortgage loan and are just a few points shy of qualifying. It also sounds as if you have received some good advice as to how best to obtain those points, though I have to confess to liking the first two suggestions a lot more than the third. I’ll tell you why.

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Can too much credit kill a mortgage?

This post originally appeared July 16, 2015 on CreditCards.com as “Myth: too much available credit hurts home loan

By Barry Paperno

Dear Speaking of Credit,
I have a lot of credit cards — about 10 when you count them all — and don’t carry any balances. I just like getting discounts and rewards. I would like to buy a house in the near future, and the mortgage broker I spoke to said he expects that to get the best rate, I should close several of the cards because that will increase my “mortgage credit score.” Having too much available credit counts against you, he said, because it means you could run up debt. Is there a separate mortgage credit score, and does it take points off for having a lot of available credit? In short, do I have too many credit cards?  — Smitty

Dear Smitty,
Good for you, paying off your cards each month and taking advantage of their discount and reward programs! One of the good things about already managing your credit so well is that you don’t really need to take any further advice — either from me or any mortgage brokers. But since you wrote, I’ll give you my two cents.

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Tread softly when a mortgage is at stake

This post originally appeared May 14, 2015 on CreditCards.com as “Getting a mortgage? Pay debts, go easy on charging

By Barry Paperno

Dear Speaking of Credit,
I am in the middle of my mortgage process. I have been preapproved and have a closing date set. With that said, will using my credit card(s) at this point have a negative effect when I close in a few weeks? I know my credit score has dropped a few points since I started the application process for the home loan with the inquiries and I have used my credit card since starting the homebuying process. — Dianna

Dear Dianna,
It’s good that you’re asking about the credit scoring impact of continuing to charge during the mortgage process. There can be some risks in doing so, which I’ll show you how to avoid. I’m also glad you mentioned mortgage inquiries as a possible cause of your lowered scores, as it gives me the opportunity to clear up some common confusion about the role of inquiries in the mortgage process.

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Past mortgage remedies can impact future loans

This post originally appeared May 7, 2015 on CreditCards.com as “How mortgage settlements affect your score (and for how long)

By Barry Paperno

Dear Speaking of Credit,
Is it possible to have a deed in lieu removed from a credit report after three years? — Alonzo

Dear Alonzo,
As a result of the Great Recession of 2007-09, many homeowners lost their homes to foreclosure or one of the alternatives to foreclosure, such as deed in lieu of foreclosure, short sale, loan modification or other tools for getting out from under a no-longer-affordable mortgage. And as with any situation in which a lender takes a loss on a loan, these consumers have paid an additional cost in the form of derogatory credit.

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Credit reporting errors about to kill your mortgage? Rapid rescore could save the day.

This post originally appeared January 29, 2015 on CreditCards.com as “How rapid rescore works when applying for a mortgage

By Barry Paperno

Dear Speaking of Credit,
I would like to get a phone number that I can talk with someone about getting my credit score higher with something called rapid rescore.  — Maribel

Dear Maribel,
I wish you had indicated what you want to do with this higher score, such as buy a home, car or make some home improvements. It would also have been helpful to know if you’re aware of any errors on your credit report and just how soon you need to see your score raised. However, since we don’t know these things, I’ll explain the rapid rescore process, who should use it and when it’s most appropriate to do so. Then, if rapid rescore sounds right for you, you’ll have a good idea of where to turn next.

The way rapid rescore works is that mortgage brokers and lenders pay a fee to the credit bureaus for a service that quickly corrects borrowers’ inaccurate credit bureau information — old balances, incorrectly reported delinquencies, collections placed in error, etc. — and, when completed, recalculates the credit scores. Often a resulting higher “rescore” will be the difference between qualifying and not qualifying for a mortgage loan.

While such information updates can easily take 30-60 days to appear on a credit report when completed through conventional means, rapid rescore essentially moves these updates to the front of the line at the credit bureau where they tend to be processed within three to five days. If this sounds too good to be true, the downside is that this service is only available to mortgage brokers and lenders for their real estate loan borrowers — and they are forbidden from charging to the borrower any part of the going rate of $30-$45 per account, per bureau being updated, which makes many reluctant to offer the program.

With rapid rescore, the consumer typically contacts the creditor, explains that the account is being reported in error and provides any supporting documentation as proof. If the creditor agrees to correct the error, the consumer is provided with a letter indicating the proper reporting of the account. The consumer then provides this letter to the broker/lender to submit to the credit bureau(s) via rapid rescore where, again, the turnaround time is about three to five days.

By comparison, using traditional channels, in which the consumer has convinced a creditor to fix an error, it can take weeks or longer for the correction to make its way to the credit report and score.

Another feature of rapid rescore that can be good or bad, depending on whom you ask, is a score simulator that can anticipate the scoring impact of a particular change to an account before beginning the rapid rescore process. That’s the good news. The bad news is that when the simulator is wrong, which it often is, rapid rescore can result in fewer points than expected, or even a lower score than you started out with.

A common misconception about rapid rescoring is that this process can somehow find ways to raise your score to heights not otherwise possible. Anyone considering the use of rapid rescore should clearly understand that the only scoring advantage is the speed with which the score changes. The number of points achieved by a particular change will be the same whether rapid rescore or conventional means are used (all other things being equal).

Another common misconception about rapid rescore is that it’s only about the score. According to Leah Tove, mortgage broker with Envoy Mortgage, mortgage companies are always leery of any attempt at credit score manipulation by consumers and tend to be highly suspicious of disputed accounts that, by design, are excluded from scoring until resolved. As a way to artificially inflate scores, some consumers, often with the assistance of credit repair agencies, have been known to abuse the credit dispute process to effectively exclude negative accounts from their scores. Ever since mortgage companies became aware of this tactic, they have refused to make loans to borrowers whose credit reports indicate an unresolved dispute. Says Tove, “We really dread seeing disputes, since we can’t do the loan until the dispute is resolved.”

In the event of a disputed account threatening to kill a loan, rapid rescore can come to the rescue relatively quickly if the consumer can obtain written confirmation from the creditor that the dispute has been resolved. The broker/lender can then submit a rapid rescore request and in a matter of a few days be able to prove to the mortgage company that the dispute has in fact been resolved.

Another example of mortgage lenders becoming suspicious of artificially inflated scores falls directly onto the rapid rescore process itself. “Post mortgage meltdown,” says David Kanis, mortgage broker at Fairway Mortgage, “the practice of doing this [rapid rescore] is not positively viewed by the end banks. When a loan is sold in the secondary markets, if there is a second report pulled, the end banks have the right to request the first report to see what the borrower did to ‘manipulate’ their credit.”

Kanis recommends that “borrowers talk with their mortgage consultant early on when they are even just thinking of aligning themselves for a possible purchase.” The broker/lender will pull your credit reports and scores and advise you of any necessary error correction or other concerns to be aware of before actually applying for a mortgage. If this is done early enough in the process you’ll have plenty of time to contact any creditors and file disputes that can be resolved prior to submitting the loan application. Or, if you don’t have that kind of time and have errors to resolve, perhaps rapid rescore might just be right for you.

Have a question or comment?  Let’s hear it!