| House Refinance Center |
| Fixing Damaged Credit Reports |
| Damaged Credit Reports: Check Rapid Rescoring A credit score has the power to move mountains. A high score gives you the opportunity to not only get a mortgage, but also to get a good interest rate. In fact, lenders will be competing for your business. But the system is flawed and there are errors. Roughly eight out of ten consumers have at least one mistake on their credit report. We are constantly reminded by the Better Business Bureau, various consumer agencies and the government to order a copy of our credit report. We are encouraged to look for mistakes and any inaccuracies. When we find them we are to contact the credit reporting agencies and ask them to correct these errors. But the news and pleas fall on deaf ears. We wait until we are applying for credit. Some of us order a report a week or two before sitting down with our lender. Others blindly let the lender pull the report, and we anxiously await the news. If there are errors you can still get the loan. However the interest rate will be higher. For a big ticket item like a house, the higher rate can mean $100 or more each month in mortgage payments. To fix your credit report you have two roads to choose from. You can do it yourself and write letters to the three credit reporting companies, or you can hire a company to do rapid rescoring. Bad credit is bad credit, and nothing can change that in the short term. Rapid rescoring can have the changes reflected on your credit report in a matter of weeks rather than months. An additional feature of rapid rescoring is advice and guidance the professional will give you. If you have several credit cards with outstanding balances, and limited funds, you need to know which cards to pay off or pay down. For example, a $500 payment on a department store card might add 25 points to your score. Whereas, the same $500 payment towards a Visa might add 50 points. Getting the biggest bang for the buck is the name of the game. Companies that specialize in rapid rescoring charge a fee for their services. If you have time you can do most of the work yourself. But if you are closing on a house in 3 weeks and the debt-to-income ratio, or other ratios just aren't fitting the mold, you should turn to the professionals. They do this type of work every day and they have built a rapport with the banks and credit reporting agencies. prev: next: Home: |
| Bank Lowers Your Credit Limits: Your FICO Plummets Do you know that you can have a credit score of 800, do nothing, and suddenly see your score drop to 700? How is this possible? The current housing crisis has brought many changes to the mortgage industry. Banks have tightened their underwriting guidelines, and in many instances they have cut back and reduced credit to some of their best customers. This change, which by the way is outside the control of the customer, has devastating results. Lets say that you have a home equity line of credit (HELOC) of $80,000 and you have used $60,000, your utilization rate is 75%. Not bad, and it wouldn't count as a negative on your score. When the bank changes your limit to $60,000 your utilization rate jumps to 100%. This is bad news. It means that you are using all your credit, and a loan officer might interpret this as someone who is struggling and might be a high risk. The bottom line is that your credit score will plunge from 800 to around 750 or lower. A similar result will be achieved if a credit card was involved. Banks have been reducing the limits on credit cards for no apparent reason. They are scared. The reason your credit score drops is because you are penalized for high utilization. In the FICO model high defaults are correlated to low credit scores. Lenders should code the report differently when the utilization rate is increased due to the banks' policy. The National Association of Realtors would like to see the FICO credit scoring model revised. The realty group, which is 1.1 million members strong, would also like to see a revision in lender codings to indicate that the homeowner received a loan modification approved under a federal program such as HAMP. As it is now post modification payments are treated as "not paid as originally agreed". I support these efforts wholeheartedly. I would take it further and make it mandatory for the bank to inform the customer of any changes to their HELOC or credit card limit. The customer will then have 90 days to put some money on the accounts in order to bring them in line with previous utilization rates. prev: next: Home: |
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