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Have you been trying to get a home loan for some time, but every time your mortgage application got declined mysteriously?
Despite meeting all the qualifying criteria, repeated rejections have frustrated you.
All the answers to your questions may have been lying in your credit reports. These reports often have many inaccuracies, and you need to fix them.
Shocking Revelations by the Consumer Report Survey!
In 2021, Forbes reported that 34 percent of consumers found at least one error in their credit report. The data came from Consumer Reports, which surveyed 6,000 volunteers.
Those errors on the credit reports often result in damaged credit scores, loan denials, or incorrect debt sent to collections.
In 2022, the average VantageScore® in the U.S. is 698. You will need a minimum credit score of 620 to secure a conventional mortgage.
To make the matter worse, a recent report by CNN states that in 2022, property pricing has gone up by almost 20 percent. Due to this, mortgage rates have skyrocketed, making it harder to buy a home.
You can still have a fair shot at getting a mortgage once your credit history is fixed.
Inaccurate Credit History Can Ruin Your Plan of Buying a Home
All these years, if you have not checked your credit reports, you should do it now! It could help you save thousands of dollars that you may have paid for the wrong reasons! On top of it, you can remove your negative credit history.
Recently, the Consumer Financial Protection Bureau (CFPB) criticized the three credit agencies or bureaus, TransUnion, Experian, and Equifax for their delays to resolve credit inaccuracy issues.
The complaints have even generated Congressional interest regarding instances of deprivations by credit bureaus.
Now, on your part, you need to get a copy of your credit reports first from AnnualCreditReport.com or call them at (877) 322-8228.
Subsequently, you have to check each section of your credit reports to find discrepancies that are affecting your credit score.
Your Credit Report May have this Negative Information
If you are not eligible for conventional mortgages, you can still get non-conforming mortgages, such as FHA, USDA, or VA after your negative credit history goes away.
The following are the common discrepancies that you are likely to find in your credit report:
- Foreclosures and Collection Accounts
- Tax Liens
- Slow Payments
The most crucial step is to read the credit report carefully. It will help you identify some major flaws there.
How to Read Your Credit Reports
The arrows in the following sample credit report show how to read it step by step.
You need to read the following sections of your credit report:
- I.D. Section: It includes your name, address, and other identifying information.
- Credit History Section: In this section, you will get a list of all your open and closed accounts.
- Collection Agency Accounts: Information on your accounts that your creditors passed on to a collection agency.
- Courthouse Records: These are the public records obtained from the federal, local, and state courts.
- Additional Information: This section includes all the information related to previous addresses and employment history.
- Inquiry Section: This is the section from which you will get to know which companies requested your credit history during the last 24 months.
Once you go through the above sections in your credit report and identify the inaccurate information, in the next step, you can consult a reputable credit repair company to speed up the process.
Your FICO score will affect the interest you pay, which will be a crucial factor in your mortgage. A 100-point variance in FICO scores may affect your mortgage interest rate by 0.5 percent or more, amounting to thousands of dollars payable over the life of the mortgage.
Improving Your Credit Score Can Get You these Non-Conforming Mortgages
The following types of mortgages have been designed for people who don’t qualify for conventional mortgages:
- FHA Loan: Even if your credit score is as low as 580, you can still qualify for a Federal Housing Administration or FHA loan with only a 3.5 percent down payment. You may even get an FHA loan if your credit score is between 500 and 579, provided you make a 10 percent down payment. FHA loans are funded by the Federal Housing Administration and are designed to help people in the low to moderate-income group get a mortgage.
- USDA loan: The U.S. Department of Agriculture (USDA) offers these loans with no minimum credit score requirement. However, you still need a credit score of 640 or higher to get approval. These loans are also for low-income groups and without any down payment.
- VA loan: The U.S. Department of Veteran Affairs (VA) provides these loans for military personnel on active duty or veterans and their surviving spouses. These types of mortgages don’t require any minimum credit score, which is a good option for people with zero or negative credit history to get home loans.
You Can Consult a Credit Repair Company to Restore Your Credit Score
If you are too busy to communicate and follow up with the credit bureaus, there are credit repair companies that can help you restore your credit score by removing errors from your credit reports.
When your credit score improves with the help of credit repair services, you are likely to get approval for at least one non-conforming mortgage like FHA, VA, or USDA.
On most occasions, credit repair increases consumers’ credit score between 100 and 149 points.
During a credit repair process, experts from a consulting company audit the credit bureaus, creditors, and collection agencies under the ‘Fair Debt Collection Practices Act,' ‘The Fair Credit Billing Act,' and ‘The Fair Credit Reporting Act.’
Besides, the credit repair company will also guide you manage your finances carefully and avoid any high “debt-to-income” ratio. It means you should not have a high level of debt relative to your income. This figure compares your payable debt and your income.
Lenders prefer to see a low debt figure. To qualify for a mortgage, your debt-to-income ratio should be below 43 percent. Simply put, you should not spend more than 43 percent of your income on debt.
It Takes Time to Get a Negative Credit History Repaired - Have Patience
If your credit reports have errors, a credit repair company can prepare and send a dispute letter to the credit bureaus and creditors and get those inaccuracies removed.
How long it will take to get your negative credit history removed will depend on the number of errors in your credit reports. For fewer errors, it takes nearly 3 to 6 months to resolve the credit disputes. However, hard credit checks could take 12 to 24 months or longer.
During the audit, if any data is found to be inaccurate, it will get deleted. It will likely increase your credit score, and you will qualify for non-conforming mortgages.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2022 Sumit Chakrabarti