Friday, March 29, 2013
ALERT ! Your Credit Report is a Lot More than Just Your Score...
It happened again the other day. I had a new client that had recently pulled their own credit report and had a decent middle score above 600. I can actually originate a loan with this score.
But your credit report is so much more than your score. Of course, the score matters, but not as much as you would think. Your credit report contains a lot more information that can keep you from obtaining a mortgage loan than your score.
In order for a borrower to get credit, you must USE credit, as in you must have active creditors that are reporting to the credit bureaus on a monthly basis. If you have not used a any creditors in the past 12 months, you are going to need to use Alternative Credit (see my blog on Alt Credit). But this only works on FHA loans. A borrower must have at least 3 creditors that have 12 months active history and have been used within the last 12 months. That means you will have to have at least a 640 mid score (with my firm, at least) before you can use Alt Credit. Conventional financing is out of the question - no active tradelines, no loan. Those who do not use credit and pay cash for everything, beware. Those who do not use credit also cannot get credit.
Collections are a funny thing, they only affect you if they are new. And when they are major. A medical collection gets a pass from FHA. Conventional loans require they be paid. But a collection from a apartment complex will have to be paid. Lenders sometimes look at collections as already being calculated into the credit scores, so collections often do not have an adverse effect on the underwriting decision. Either way, expect a to write a letter of explanation if you have a collection, whether you have to pay it off or not.
You will have to explain all inquiries made on your report in the last 120 days from when your credit report was pulled. If you have something embarrassing that requires credit to obtain, then wait or do it 6 months before you try to buy a house or refinance your mortgage. Your going to have to explain it, in writing.
BANKRUPTCY & CONSUMER CREDIT COUNSELING
A bankruptcy CAN be on your report.
A Chapter 7 Bankruptcy must be dismissed by the court for at least 2 years from the discharge/release date. No exceptions. A lot of borrowers think that the 3 year clock starts ticking when they actually submit the BK to the court. Not true. It's the release date.
A Chapter 13 Bankruptcy must be discharged 2 years by the court. If you are currently involved in a Chapter 13 BK, then you must get permission from the trustee or the court to agree to the new financing, and you must provide documentation so it can be included in your debt-to-income ratio.
You can expect to explain all of the circumstances that caused you to file bankruptcy. The lender is going to evaluate your situation in order to determine the likelihood of it occurring again.
Consumer Credit Counseling is allowed if you have been making payments for at least 1 year. Expect the payments to be included in your debt-to-income ratio. You will also need permission from the CCC service to obtain financing.
RULE OF THUMB - DO NOT INCLUDE A MORTGAGE IN A BANKRUPTCY. IT CAN KILL YOUR CREDIT AND MAKE YOU UNABLE TO OBTAIN A MORTGAGE OR REFINANCING FOR A LONG TIME.
This one is easy. Pay it. You are not going to get anywhere without paying them. Period.
You are not going to be able to buy a new house if you cannot pay for the old one, at least for 3 years. BEWARE: Lenders generally start the 3 year countdown AFTER the foreclosed property has been sold.
Fraud Alerts can actually freeze a bureau or your whole credit report, it's according to how many bureaus you have placed the alert with. Before you decide to seek financing, contact the bureaus and remove the alerts.
ADDRESS AND SOCIAL SECURITY MISMATCH If there is a significant mismatch with your name, address or social security number, this can freeze your report as well. Make sure your loan originator has the correct information before they pull your credit report. If they don't, they may have to pull another report, and this may adversely affect your score (it shouldn't, but there is always the possibility).
Your scores are important, YES. The credit score is the official entry into the credit game. But I have seen just as many people not obtain credit for the reasons I listed above as I have because their scores were to low. All of it is important...