Category Archives: Mortgage

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!

Torpedoing a mortgage can be easy to do. 5 steps to ensure you don’t.

This post originally appeared November 20, 2014, on CreditCards.com as “5 credit don’ts for homebuyers applying for mortgages

By Barry Paperno

Dear Speaking of Credit,
I am buying a house in five months. I also want to apply for a furniture store credit card, which they are offering with no payments until 2016. My question is, how long do I have to apply for this credit card so that it won’t affect my credit when closing on my new home? — Al

Dear Al,
I commend you for asking this question now and not after the fact, as happens all too often when buyers get caught up in the excitement of a new home purchase. Your question indicates that you already understand the importance of treading very softly when it comes to making any changes to your financial picture at this time — whether opening new credit, making large bank account deposits or withdrawals, or even, as I will explain, disputing credit reporting errors.

Fortunately, it’s simple to know where to tread — and how softly. When in the process of seeking mortgage approval and at the same finding yourself faced with opportunities to open new credit accounts and charge major purchases to existing cards, first ask yourself if this new account or balance will appear on your credit report. If the answer is yes, then simply don’t do it.

To illustrate, I’m going to list five “don’ts” to follow that can keep you from jeopardizing your mortgage during the all-critical mortgage loan approval process:

1. Don’t be late. The surest way to torpedo a mortgage application is to miss a payment, or worse, add a collection or judgment to your credit report. A 30-day late payment can arise from a missed payment of any amount on a credit card, mortgage, auto loan or student loan, and can lower your score by more than 100 points. Collections and court judgments, which often find their way to credit reports seemingly from out of nowhere, can drop your score just as significantly when unpaid medical charges, utility bills, parking tickets, and even library fines go uncollected. If you have reason to believe such a debt might be lurking in the shadows of your credit file, pay or somehow resolve it immediately.

2. Don’t add to any existing credit card balances. Credit card utilization (balance/credit-limit percentage) is second only to payment history in impacting your credit score. They comprise 30 percent and 35 percent of your score calculation, respectively. Maxing out just one low-limit credit card can cause your FICO score to drop by as much as 45 points and disqualify your mortgage application.

3. Don’t apply for any new credit accounts. Here’s where your question about the furniture store card gets answered. The day after you close on the house, feel free to apply for this and any other card that can save you money on the many purchases you’re likely to be making as a new homeowner. But until then, don’t allow any creditor to so much as check your credit, let alone open a new account in your name. While it’s a little harder to estimate the number of points you can lose due to newly opened accounts and inquiries versus missed payments and maxed-out cards, a FICO study shows that, on average, people with the best credit scores (upper 700s) have not opened a new account in more than two years.

4. Don’t close unused accounts. What’s important to remember about closing cards is that doing so will not raise your credit score, only, in some cases, lower it. A score can fall when closing a card reduces the combined available credit amount to the point where the credit utilization percentage increases for the remaining open cards. As with opening new accounts, if you want to close a card, wait until you’re in your new home.

5. Don’t dispute anything on your credit report. Unlike the first four “don’ts,” the problem with disputing credit reporting errors isn’t that it lowers your credit score. Rather, under current mortgage lending rules, all it takes is one disputed account under investigation by the credit bureau — for whatever reason or amount — to delay or, in some cases, kill the loan. The rule is the result of lenders getting wise to consumers who in the past have tried to raise their credit scores by disputing negative, though accurate, information.

Now armed with this set of actions not to take until after closing, I hope your mortgage approval process goes through without a hitch and that you enjoy being in your new home!

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