Credit Disputes During The Mortgage Process

In this blog, we will discuss and cover the negative impact of credit disputes during the mortgage process and how they can impact the loan process. Credit repair is the process of removing your derogatory credit information from your credit report through credit disputes. Nothing is wrong with disputing credit tradelines if you have documentation and proof. But just disputing your credit for the sake of the credit bureaus to overlook it and remove it will backfire on you. This holds especially true during the mortgage loan process. Consumer hires credit repair companies so their credit report looks cleaner and to improve their credit scores.

What Is Credit Repair and Credit Disputes?

Credit repair is the processing of disputing the inaccuracies with the creditor and/or the three credit reporting agencies;

Each consumer normally has three different credit scores, one from each of the three giant credit bureaus.

Role And Responsibility Of Credit Bureaus

The three giant credit reporting agencies do make credit reporting errors and every consumer should check their credit reports periodically to make sure that there are no errors on their credit reports. A low credit score can mean paying higher interest rates on mortgage loans, auto loans, insurance, and other credit. A wrong reporting date on bankruptcy and/or foreclosure can mean being disqualified for a residential mortgage loan. A recent late payment that is reported erroneously can mean getting disqualified for a mortgage loan or other forms of consumer credit

Is Credit Repair Needed To Establish Credit And Raise Credit Scores

If you are planning on doing credit repair to qualify for a mortgage, you do not need to. There are other ways of raising your credit scores and re-establishing your credit to qualify for a mortgage. Does credit repair work? The answer is YES. Anyone can repair their credit on their own if they have proof that the credit bureaus have made a mistake and reported the wrong information.

Removing Inaccurate Data From The Credit Bureaus

For example, if you filed bankruptcy and your discharge date was March 03, 2010, but the credit reporting agencies recorded it as March 03, 2011, you can definitely get all three credit reporting agencies to remove the erroneous date and post the actual recorded date. The way you do this is to mail a letter along with your discharge bankruptcy paperwork to all three credit reporting agencies and have them correct it.

Removing Inaccurate Data By Providing Documentation To Credit Bureaus

Same with other errors on your credit report such as collections and judgments. If your credit report is reflecting that you have unpaid active open collections and you have proof and canceled checks proving it otherwise, you need to send supporting documents along with a letter disputing the inaccuracies.

Credit Disputes From Credit Repair Companies

Credit Disputes From Credit Repair Companies

Any credit repair that a credit repair company can do, you as a consumer, can do it yourself. Many folks rather hire a credit repair company instead of taking the task of credit repair themselves. Like all industries, there are scammers in credit repair and every consumer should do their due diligence before they hire a credit repair company.

Credit Repair Companies Are Not Regulated

I have seen reputable credit repair companies do magic and work diligently to help their credit repair clients. I have also heard countless horror stories from my mortgage loan borrowers where they have spent thousands of dollars to credit repair companies with very little or no outcome. Yet, I have witnessed credit repair companies do more damage than good to their clients with their credit repair.  It was not intentional damage but many credit repair companies do not know too much about the mortgage industry.

Credit Disputes During The Mortgage Process

In order for someone to qualify for a residential mortgage loan, you cannot have an active credit dispute on your credit report. If you have a credit dispute on a derogatory credit item on your credit report, the mortgage application process is halted until the mortgage loan borrower retracts the derogatory credit dispute.

Removing An Active Credit Dispute and How It Drops Credit Scores

If you retract a derogatory credit dispute, your credit scores will plummet. A recent derogatory credit dispute from one of my mortgage loan borrowers plummeted her credit scores by 80 plus FICO points where she could no longer qualify for a residential mortgage loan. A credit dispute retraction will definitely drop your credit scores and you can bank on it. If you are intending on applying for a residential mortgage loan in the near future, please consult with a licensed mortgage loan originator before starting a credit repair program.

Medical Collections And Zero Balance Collection Disputes

Mortgage lending guidelines do not count disputing medical collections and collections with zero balances such as a charge off to qualify for a residential mortgage loan. Also, collections under $1,000 dollars can be disputed. However, it is recommended that you do not have any pending credit disputes on the derogatory information period unless you have hard evidence proving that the derogatory information is not yours.

Can Bankruptcy, Foreclosure, Deed In Lieu Of Foreclosure, Short-Sale Be Deleted From Your Credit Report Through Credit Repair?

Can Bankruptcy, Foreclosure, Deed In Lieu Of Foreclosure, Short-Sale Be Deleted From Your Credit Report Through Credit Repair?

Yes. There are many cases where credit repair companies somehow remove bankruptcies, foreclosures, deeds in lieu of foreclosures, and/or short sales from their client’s credit report. Removing these derogatory items will make your credit report look much cleaner and might improve your credit scores. However, removing the bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale from your credit report will not get you a residential mortgage loan approval if those are valid and you do not meet the federal mortgage lending guidelines.

Automated Underwriting System

You might get an approve/eligible per DU FINDINGS or LP FINDINGS via the Automated Underwriting System. But when you fill out a 1003 residential mortgage loan application, you will be asked whether you have filed bankruptcy, had a foreclosure, had a deed in lieu of foreclosure, or had a short sale. If you lie and state that you did not but in actuality you did, you are committing mortgage fraud and you do not want to go there.  Mortgage fraud is a serious offense and a felony that carries a maximum federal prison sentence of 30 years.

It Is Illegal to Remove Public Records Off Your Credit Report

Getting bankruptcies, foreclosures, deeds in lieu of foreclosures, and/or short sales deleted from your credit report may improve your credit scores. It can possibly get you unsecured credit cards or other credit. When it comes to residential mortgage loans, the deletions do not really count because you still need to fully disclose the fact that you have filed bankruptcy or had a foreclosure

When Should I Start Credit Disputes Through Credit Repair?

Many people try to get past derogatory credit items removed even though it actually belongs to them. Does this work? Yes it works and the older the derogatory credit item it is, the easier it is to get the derogatory credit item removed from your credit report. Fresh items that are newer than 6 months are next to impossible to remove.

How Does The Credit Disputes Through Credit Repair Process Work

The credit repair process works like this. You write a letter to the three credit reporting agencies; Experian, Equifax, and Transunion; stating that the derogatory credit item you are disputing is not yours. The credit bureau will then contact the creditor you are disputing to provide evidence that the creditor provides validity to your disputed derogatory credit item. If the disputed credit item is fairly current, the creditor will most likely have it handy and will provide it to the credit bureaus it validates the derogatory credit item and that item will stay on your credit report.

Multiple Collection Accounts For The Same Derogatory Credit Tradeline

Multiple Collection Accounts For The Same Derogatory Credit Tradeline

With older derogatory credit items, it may have been sold from one collection agency to another or the creditor may no longer be in business. If this is the case and the creditor cannot validate your credit derogatory dispute, then all three credit reporting agencies need to delete the derogatory credit items within 30 days of receiving your credit dispute letter. This is how basic credit repair works. So in reality, you can actually have negative credit items that belong to you removed from your credit report if the creditor does not respond to the credit reporting agency within 30 days.

Credit Disputes In Removing Negative Credit Items

As mentioned earlier, the older your derogatory credit item is, the easier it is to remove your negative item from your credit report. Unfortunately, the older your derogatory credit item is, the less impact it has on your credit scores also. Some derogatory credit items that are older than 2 or 3 years old will have very little or no impact on your credit scores. However, your credit report will look cleaner. Most employers who run credit background checks normally will not care about the employee’s credit scores but will look at the candidate’s overall credit history and credit report.

Importance of Credit For Employers, Insurance Companies, and Lenders

More and more employers are using credit background checks as part of their hiring process and having a clean credit history does count. So trying to remove older derogatory credit items may be beneficial for those job seekers. Those seeking positions in police departments, fire departments, and other government career positions may gain the best benefit in enrolling in an aggressive credit repair program. This is because these employers are strict when it comes to having good credit and view a candidate’s credit report in judging whether the candidate is financially responsible.