PREPARING CREDIT FOR LOAN APPROVAL AFTER DAMAGE DUE TO THE ECONOMIC DOWNTURN. | North Shore Advisory Inc.
Most consumers do not understand how credit and scores work. Even if an individual has experienced a bankruptcy, foreclosure, short sale, loan modification, or just extreme late payments on a mortgage they can still participate in home ownership/loan approval again. Recently there are loan types that include shortened waiting periods for those who experienced these extreme credit damaging events.
To understand the total picture of improving ones credit we must look at not just the delinquent accounts but also the value of the rest of a consumer's credit portfolio. For example:
Yesterday I reviewed a credit report with a Fico score of 724. This report included a short sale from August 2013. Fico has published information about how short sales impact credit scores and if you started with a 780 and had a short sale with no deficiency balance your score could drop as low as a 655-675. Obviously the individual with the 724 Fico score after the short sale must have had an 840 Fico prior to the damage. Although it is very unusual to see such a high credit score it speaks to how important building the best credit scores can be even when you have a catastrophic credit problem.
This woman had many active credit accounts, old average age of credit, low balances on her credit cards, and a nice variety of installment, revolving, and mortgage accounts. The only delinquency was the short sale. With a 724 score she might qualify for loan approval within 12 months depending on why the property went to short sale. If it was due to the economic downturn and proof of this was documented she could qualify by working with a lender that is participating in the new "Back to Work" FHA program. With her very good credit score she would probably get the best pricing as well.
On the other hand if a consumer had the same short sale with many other delinquent accounts and unpaid bad debt over varied time periods the score would be much lower, probably in the low 500's. This type of credit would not allow loan approval for the new program discussed since one of the rules is the credit must reflect all delinquencies occurred from the same economic hardship. Therefore late payments from varied time frames would knock him out of qualifying. Besides losing out on participating in the "Back to work" program this individual's credit score is so low that he may have to wait many more years to get approved at affordable pricing. Working on improving credit as soon as possible could save some of those years where he would be waiting for the score to inch back up naturally.
For someone who has had bad debt that was settled and paid with limited or no open credit it is essential to open and nurture the right new credit accounts. With only closed negative credit a consumer may not even have a credit score. To open new credit they must shop for only those cards that would approve such a poor credit state. Seeking out the right credit repair specialist who can improve some of the delinquencies while providing education in developing the right credit management and building skills could change the course of the quality of life to come.
For example:
John has a 501 Fico score. He is in his early thirties and is beginning to make a nice income. He wants to purchase a property for himself. He did not understand how credit worked in the past therefore he had late payments on an overdraft account as well as a medical collection and a delinquency on a store card. He also co-signed for a mortgage to help his Mom, unfortunately she lost her job and the home went to short sale 4 months before we met him. After reviewing his credit we found there were some accounts that could be improved to current. John began the credit repair process and used our client educational credit log in website to develop his credit management skills and learn how to build good credit. After a few months we had changed three of his delinquent accounts. He began applying for better credit cards and started using them correctly. He also followed steps we offered on being added to an old credit card of a trusted friend. This was a year ago and now his scores are a 680. He may also qualify for the "Back to Work" FHA loan. When John began his credit repair process he had no idea he would have the opportunity to get loan approval with this short period of time. Because he worked on improving his credit through our repair process plus using sharpened management skills if he qualifies for loan approval his 680 Fico credit score will afford him very reasonable rates and a better quality of life and financial future.
Most negative info remains on credit for at least 7 years from the date of the delinquency and bankruptcy could remain as long as 10 years. There are many laws that apply to credit, creditors, the credit bureaus, and consumers. Since there are so many reasons why credit becomes damaged including divorce, illness, injury, loss of income, or just plain lack of understanding for the credit system there are also ways in which skilled professionals might be able to remove or change information depending on why, when, and what happened with each account. Feel free to call us to review and credit reports or answer credit questions.
North Shore Advisory, Inc. offers credit repair, restoration, credit log in site, and education services. We've been providing credit education and credit improvement for almost 25 years. For bankers and realtors we can review your clients credit reports and scores to see if we can improve them.
We can help you with your business credit needs as well as any personal credit scores.
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