Often times bad credit results from not having bad credit, but by actually having too much credit, which itself lowers credit scores to a point where a purchase or refinance loan is impossible to piece together. We come across several cases, where a person has been paying everything in a timely manner, yet he can’t qualify for a mortgage at all. If this situation is left alone, it can be a very frustrating and a highly disappointing type of experience for both the borrower and the lender. If your credit scores are too low, you cannot qualify for a particular loan program that requires a certain minimum FICO scores.
For example a 100% financing request requires a minimum of 580 middle Fico score and if the scores are less than 580 and lets say just around 570 you don’t qualify for the loans. A 100% financing loan also requires that you have some established credit with at least 2 open trade lines on your credit profile or some past credit history. Credit scores by themselves are not enough to qualify. If all the debt is being paid in a timely manner, than we have to look at the root cause of the problem and it’s usually in the number of accounts balances and the credit limits. If most of the credit accounts are fully used and are at or near their credit limits than it lowers the credit scores significantly and makes it harder to qualify for the minimum 580 fico threshold that is so essential for a loan closing.
The solution to this dilemma is to look and find items on the credit report that have lower balances and pay them off if the borrower have funds and hold off on the purchase or refinance till than. If the borrower is already committed to a purchase contract than we try to extend the purchase contract and try to bring up the credit scores by paying off those balances that are effecting the scores considerably. Often times it’s much harder than said, and it takes time and work and lot of commitment on the part of a loan officer.
We work with a number of credit bureaus that specialize in rapidly changing a credit profile for a borrower. It’s called a rapid re-scoring program and is a highly effective tool that cures most of the ills and qualifies a sure fire hopeless borrower into a homeowner in a short time. The other alternative is to write to these credit bureaus and hope they will change the information for you, but that is never practical or useful in our experience. Often times it’s a hit or miss game with improper results. The borrower doesn’t have the time and resources and energy to fight a battle with credit grantors and keep up with the publishing cycles. Sometimes it can happen quickly and the loan may through, but it usually takes 60 to 90 days to update a credit report on a normal time scale.
Rapid re-scoring is a perfectly legitimate way of improving your credit and debt situation in the mortgage industry. Its not credit repair as you may seem to think, it is about reporting of actual facts in a rapid manner through the credit bureaus and it’s a service provided by some credit bureaus.
100% Mortgage loans
To qualify for a 100% mortgage you need to consolidate these debts as soon as possible if you can. These loans are not that difficult to get if you understand the basic criteria and how the debt consolidation works. Having too much debt on your credit profile and too many line items on your report makes the lender wonder how all of this debt will be kept up month after month and year after year? They reject those borrowers who are already burdened with debt and who are trying to take on additional debt and who are already using excel spreadsheets to keep up with what they got. We usually advice borrowers to pay off smaller balances first starting with credit balances of $1000 or less. There are several reasons for that. Smaller debts can be paid off easily, one by one, and it lowers the line items on your credit profile and frees up your available credit limits, which in turn improves your credit scores in a sequence.
This practice of paying off smaller balances is a form of debt consolidation to improve your credit scores. Imagine your debt as a pyramid with a base and an apex at the top. You start off taking chips from the top, and succeed layer by layer until you reach to the base, where larger accounts and larger balances are located. If you remove smaller balances from the top, its impact on your credit scores is much greater than paying your larger balances first. In our practice we see a significant change on a credit profile once these accounts get paid down and updated within couple of days. Some credit profiles change 20 to 50 points and often that much move is enough for most of the underwriting grids to start accepting a loan application that has been sitting there and get it approved. The borrower still keeps working on larger accounts and once completed it will benefit him/her for a long time.
The real goals here is to payoff all the debt and replace it with a mortgage loan that is tax deductible and is amortized at a lower rate over a longer period of time. Success comes sooner and the results are often dramatic and great to enjoy.
Dan Tanner has been a professional mortgage banker since 1993. He specializes in hard to do and unconventional sub prime loans and all types of credit histroy. Alliance Mortgage has been on the Internet since 1997 and is a portal for all types of mortgage solutions.