You need to have good credit in order to buy a house, unless you are paying cash for the home. LAER Realty Partner agents have helped direct many customers to get their credit scores increased so that they can buy a home. The first thing that most lenders and banks will do when you apply for a mortgage is run a credit report. There are three major credit bureaus; Equifax, Experian, and TransUnion. If your banker is running a credit, be sure to ask if he or she is pulling a tri-merged credit….which means it includes the reporting from all three bureaus. If your banker is running a credit report from just one bureau, then the risk is that there could be a flaw one one of the other reports that will come up later on. Each credit reporting agency gives you a score and these scores will make or break your ability to get a mortgage.
So, what happens if your credit has a black mark, or many? It’s time to get to work repairing your credit reports. There are many agencies that do this, and if you are going to choose one make sure to do your research through the Better Business Bureau. What is important to note is that you can absolutely take the same exact steps to repair your own credit. Here’s how to do it:
1. Order All 3 Credit Reports: The banks will pull credit from all three major bureaus, so you need to review all three. Each of the three bureaus is required by law to give you a free copy of your credit report once a year, upon request.
2. Don’t Close Credit Cards: While you are waiting for your credit reports to arrive, many consumers believe they are doing a good thing by starting to close out credit cards. DO NOT CLOSE CREDIT CARDS. Credit bureaus base your scores on a complicated algorithm. If you are late on a credit card payment, that hurts your credit. If you are late on a mortgage payment that really, really, hurts your credit score. If you have a bankruptcy or foreclosure, that makes things harder. As well, low or no available credit is one of the worst things you can do to your credit scores. If you have 10 open credit cards with an available credit of 1,000 on each one…or available credit of $10,000….but you only owe $100, this really helps your credit score. It basically is a sign to the credit bureaus that you are very responsible with your available credit. If you close all of your credit cards and have ZERO available credit and you owe $100 on one credit card, your scores will drop big time. All too often, consumers think they are helping their credit scores by closing credit cards. If you don’t want to use your credit, that’s great, you can cut up your cards, but never, never, never close them out. Also, don’t apply for new credit as that will temporarily bring your scores down too. Don’t apply for new credit cards, car loans, or consumer loans.
3. Dispute: Along with each of the credit reports there will be paperwork enclosed for you to dispute incorrect credit reporting. Dispute everything that is inaccurate. For example, if there is a reported late payment from three years ago, dispute it. Creditors are only supposed to report you late if you are more than 30 days past the original due date. If you pay 15 days late, that is not a thirty day late, and should not be reported on your credit report. If you have documentation, send copies along with the credit report. For example, if you have old statements or cancelled checks, send them along as support with your dispute paperwork. Even if you don’t have supporting documentation, I’ve had good luck telling customers to dispute the late anyway. Then the original creditor will look into the late payment and if it wasn’t 30 days late (or if the creditor doesn’t respond because they are no longer in business or no longer have access to the records) it will be removed from your credit report. Make sure to check the accuracy of dates too. For example, let’s say that you have a five year old collection account. I’ve seen instances where the collection shows an incorrect reporting date so that it looks like the collection happened last week, instead of five years ago. Bankruptcies should no longer show on your credit after 10 years, and foreclosures should be eliminated after 7 years. If they are on your credit past these time frames, dispute!
4. 30 Days: The credit bureaus have 30 days to respond to your dispute requests. The credit bureau will reach out to the company that reported you late. If the credit bureau receives no response within the 30 days then the derogatory item will be removed from your report. Please be aware, that it is possible that the credit bureau may receive notice later on (outside of the 30 day response time) and they can add a late payment or collection item back to your credit report if it is later determined that it was accurate.
5. Dispute Again: I’ve had instances where the client had all the proof required to get a late payment off the credit….and the new credit report would come back incorrect again. In those instances, persistence does pay off. Call the credit bureau and resubmit the dispute paperwork.
It’s important to note that many of the older companies with whom you once had credit accounts with, are no longer in business. It can’t hurt to dispute old late payments or collections with companies that are gone. The chances that there will be a response are low, so simply submitting the dispute request is all that is needed to get the black mark removed from your credit.