“If you have bad credit, can you still get a mortgage?”

Generally speaking – no.

Or maybe I should say “not until you fix your credit”.

Fix your credit?

How does that work?

The truth is, I don’t really know (how is that for honesty?).  But I can say that we work with a small handful of credit repair companies who help people remove inaccurate information from their credit reports and have seen people have success with these companies.

The end result?

I see someone who has a poor enough credit score (below 580) that they can’t qualify for a mortgage loan going into one of these credit repair programs and someone who has a high enough credit score to qualify for a mortgage “graduating” from their programs.

Common Questions About Credit Repair Companies

Do credit repair programs cost money? Yes.

How much do credit repair programs cost? Each one is slightly different, but it seems to be less than $100/month in general.

Will they actually “fix” my credit? Yes – or at least that is what I have seen happen with clients that I have seen enroll in their programs.

How exactly do they “fix” my credit? I don’t know – but they will be happy to explain their process, I am sure.

Is credit repair a “scam”? Not the credit repair companies that I am familiar with – their clients enroll, pay a fee and generally graduate the program with higher (usually high enough to qualify for a mortgage) credit scores. That would seem to disqualify them as a “scam”.

Do you currently have bad credit? Now is the time to invest the time and money to fix your credit so that you can qualify for a mortgage while interest rates are low — and interest rates won’t stay low forever!

Oh, and Mr. Obvious just stuck his head in my office and asked me to remind everyone that the first step toward fixing your credit is to to keep paying your bills on time.

In our final installment of All About Credit Scores, I thought I would compile some of the Frequently Asked Questions that I have heard in the recent past (that I could remember at least!).

“Will paying off a collection account remove it from my credit report?”

No.  A paid collection account will remain on your credit report for seven years.

If I have a collection, should I pay off the collection agency or the original creditor?

Always pay the collection agency that is collecting for the original creditor.  Many times the original creditor will have sold your account to the collection agency.

How can I get accounts removed from my credit report that were awarded to my ex-spouse in the divorce decree?

A divorce decree does not supersede an original contract with a creditor.  You must contact each creditor individually and seek the legal binding release of your obligation.

I have no credit and I can’t get a finance company or credit card company to approve me — how can I start to establish credit?

One of the easiest ways to get credit if you have no credit is to apply for a credit card.   If you are turned down by a regular credit card, you can apply for a secured credit card.

How can I get inquiries removed from my credit report that I did not authorize?

You will need to contact the bureaus directly to dispute these inquiries.

Why do Experian, Equifax and Trans Union sometimes have different information?

Creditors voluntarily provide information to the credit bureaus and are not required to report to all three.  Some companies do not report to the bureaus at all, so it just depends on your creditors.

Do you have more questions about your credit report, credit scoring or anything else credit-related?  Let us know!

In part 1 of our All About Credit Scores series, we covered a few simple ways to tip the scales in your favor when trying to maintain a good/great credit score.  Today we are going to cover the “secrets” behind credit score calculations.

Until recently, the secrets of credit score calculation have been very closely guarded — but we can now pretty closely estimate how your score is put together.

Payment History = 35%

Do you pay your credit on time?
Length of positive credit history
Severity and quantity of delinquencies

Amount Owed = 30%

Quantity of credit accounts — too many credit cards with balances can lower a score.

Length of Credit History = 15%

The longer the history, the better.
How long have your credit accounts been established?
How long has it been since you used certain accounts?

New Credit = 10%

Research shows that opening several credit accounts in a short period of time does not represent greater risk — especially for people who do not have a long established credit history.

Types of Credit In Use = 10%

2 installment loans
3 revolving accounts with balances
Balances on revolving debt below 30% of the high credit
No collection accounts
No public records
No foreclosures
No late payments

While the most important thing in credit scores is your overall score — what makes up that score is helpful to know.  For example, if you know that too many credit cards with balances can hurt your score — you may want to take steps to consolidate those cards into one account or pay them off if possible.

Many times, your mortgage professional will have access to something called a “what-if” simulator — which will allow them to easily explore how different actions may impact your credit score.  The simulator will allow you to experiment with actions — individually or simultaneously — from making payments to closing accounts, transferring balances and more.  It is helpful to predict results and to make informed decisions about what actions on your part could easily increase your credit score.

So if you haven’t heard of the “what-if” simulator and are working on refinancing or buying a home, make sure you bring it up with your loan officer — a boost in credit score could save you thousands of dollars in interest over the life of your loan!

Your credit score is a numerical representation of your statistical likelihood to repay credit that is extended to you.  Scores range from 350 to 850.  Your score is a “snapshot” of a specific moment and can change with new actions and the passage of time.

Some things that can help you tip the scales in your favor include:

• Paying all of your bills on time or early.  Even a 30 day late on a small credit card can have a significant negative impact on your scores.
• Don’t co-sign for someone else’s loan — their late payments are your late payments!
• Don’t close old revolving accounts no longer in use.
• Don’t open new accounts unless absolutely necessary (inquiries may or may not affect your score depending on the rest of your credit history).
• Report fraud immediately.  If you find yourself the victim of fraud, immediately contact the credit bureaus, your credit card companies, banks and the FTC.
• Monitor your credit.  Order a copy of your credit report once a year.
• If you are planning to refinance or buy a home, don’t make any purchases or run up the balances on your credit cards prior to the transaction.  They will be counted in your debt-to-income ratios.

In part 2, we will unveil the mystery of what makes up a credit score and the secret formulas behind credit score calculations. Special thanks to Advantage Credit for help with the content of this series.