The Importance of Credit and the Role it Plays in Mortgage Qualifying - Part IV: Credit Repair

Written By: Stacey Sprain

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

If you’ve ever taken steps to repair your own credit or assisted a borrower with repairing his/her credit report for mortgage-related purposes, you know how simple the process is and you also know, if you’ve taken advantage it properly, that there is NO COST associated with it. That’s right folks, it’s free! I’ve used this process on a number of occasions to instruct people on how to repair their own credit and it has worked like a charm every time.

The Federal Trade Commission offers a lot of free information on credit in the form of bulletins, brochures, booklets, and handouts. The materials are available absolutely free and can be ordered in bulk quantities. I’ve used the materials on many occasions to distribute at company meetings, with loan application packages, for presentations, and have even passed them to friends and family to educate them on credit and how to accomplish credit repair. I like to keep a supply on hand just for those purposes. As I’ve mentioned before, I am an advocate for consumer education so I feel that anything I can do to help “spread the word” is well worth the efforts.

You’ll find online credit-related education materials at the following FTC consumer websites:

- Your Rights- Credit Reporting:http://www.ftc.gov/bcp/menus/consumer/credit/rights.shtm

- Credit Cards and Consumer Loans:http://www.ftc.gov/bcp/menus/consumer/credit/loans.shtm

- Credit Reports and Scoring:http://www.ftc.gov/bcp/menus/consumer/credit/reports.shtm

- In Debt? http://www.ftc.gov/bcp/menus/consumer/credit/debt.shtm

- Mortgages/Real Estate:http://www.ftc.gov/bcp/menus/consumer/credit/mortgage.shtm

- Privacy:http://www.ftc.gov/bcp/menus/consumer/credit/privacy.shtm

Set these websites as favorites on your PC and visit them regularly to read up on credit-related issues so you will always have current information to pass on to your friends, family and borrowers.

I get asked occasionally how I know about all of this “credit-related stuff.” Quite simply, I learned simply by reading through the materials I’ve referred to above! Years back I got frustrated with so many derogatory credit reports coming across my desk and became determined to figure out how I could help borrowers clean things up on a permanent basis so that I didn’t have to deal with the same derogatory, outdated and duplicated credit accounts every single time one of them decided to refinance. I went web-searching for answers and I stumbled on to the Federal Trade Commission Consumer website. I started reading the exact same brochures you’ll find at the links I’ve laid out above and I used the information to help borrowers learn how to get their credit fixed.

So exactly how does a person go about repairing their credit? The first step is by obtaining the free annual credit report that every consumer is entitled to by law. I covered that process in my last article. Simply direct the borrowers to www.annualcreditreport.com where he/she can request his/her free credit report from each of the three main repositories- TransUnion, Equifax and Experian.

Upon receiving each report, the borrower will need review all of the data that is listed including the personal information – Make sure name is spelled correctly, that date of birth is correct, that the social security number is valid, and most importantly, the borrower needs to review the information reported with each credit tradeline to make sure that the account number, open date, monthly payment amount and outstanding balance is correct. The borrower also needs to make sure that each account with a balance is rated current and not out of date. Often, older derogatory accounts like collections, charge offs, tax liens and judgments may reflect old outstanding balances that are not up to date or accurate. It is those older derogatory accounts that most often will need the repair so that the consumer can present an up to date credit profile.

Another thing to watch for is to make sure there are no duplicate outdated derogatory accounts. Often a collection account may transfer between several collection agencies and reflect old and outdated balances with each of them instead of just reflecting the account that most recently acquired the account.

Once the borrower has edited the report data and determined the information that needs to be corrected and updated, he/she can submit an electronic request for account investigation right online through the repository provider of the credit report. Those instructions are included right within the report when it is received after requesting from www.annualcreditreport.com. You can also refer people to the following websites where they can submit credit dispute requests regarding their personal reports after they first obtain a copy of their personal credit report from each repository:

- TransUnion- Credit Disputes:http://www.transunion.com/corporate/personal/creditDisputes.page

- EquiFax- Online Disputes: http://www.equifax.com/answers/correct-credit-report-errors/en_cp

- Experian Credit Report Disputes: http://www.experian.com/disputes/

Each of the repositories also allows consumers to request account investigations/disputes by phone and by mail. The borrower’s personal credit report received through www.annualcreditreport.com will include a phone number and address specifically for those purposes.

The most common reasons I find for outdated and inaccurate credit report data are often related to bankruptcy and divorce. Often after someone files bankruptcy and has the bankruptcy discharge a number of liabilities, they do not follow the proper steps to get their accounts all updated on their report. The same thing often happens with divorces. When liability responsibilities are reassigned in divorce settlements, often the borrower forgets the importance of notifying the credit repositories to advise that he/she has divorced and is no longer liable for particular account payments and balances. In such cases, it’s important that the consumer provide supporting documentation with their request for dispute. The same if often true of collection account payments. If a collection appears as unpaid yet the borrower is adamant that the balance has been paid off, he/she simply needs to provide a copy of a cancelled check, money order receipt or alternate form of evidence for payment made.

For each dispute request, the repository has 30 days in which to investigate the account and render communication as to status. In most cases, the investigations are complete within 30 days, the account information is permanently updated and the borrower’s credit will be automatically “cleaned up.” Once that happens, it means that each time you may pull his/her credit for mortgage-related purposes, you should start to see fico scores improve and will no longer see the same old outdated and duplicated garbage on his/her report.

One thing of great importance to remind everyone about- The credit bureau that you use locally to pull credit only updates the consumer’s accounts temporarily for mortgage-related purposes. The updates they make upon your request are not permanent. The only way that consumer accounts can be updated permanently is through the major repositories- TransUnion, Equifax and Experian. So each time you find yourself calling, faxing, or electronically requesting tradeline updates for your borrower when processing their loan application, remember this series of articles about consumer credit. You can take the tips and information I have listed to help educate your borrower on how to accomplish these updates permanently with no cost to him/her.

Tune in next week when I’ll discuss FCRA- the Fair Credit Reporting Act.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org


About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.



Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.