Here's what happens. Somebody drives by a home that they always admired-even thought they might like to live in one day. There is a "For Sale" sign in the yard. That wistful thought becomes an action plan-BUY THE HOUSE. The first thing the potential buyer does is to call the Realtor listed on the sign. The Realtor asks-"Are you pre-approved?" That's when my phone rings. The facts are that this is the backward way of achieving the goal of home ownership-pre-approval comes first because -if you are a regular reader of my blog you already know-that a buyer not only has to be ready and willing, they have to be able to buy the home. Responsible real estate agents will not write an offer on a home until and unless the buyer has spoken to a financial institution about the prospects of borrowing money to buy the home.
Once the phone call comes in I begin the process of pre-approving the borrower-the first step of which is to take a look at credit to see how the potential home owner manages his/her debts. The statistic cited above by NCO-1 out of 4 people in the US have a credit score of 599 or below? That is a very sobering number. 25% of the adult population of the United States has issues on their credit report that drop their scores below what most lenders require to obtain mortgage financing. And I would attest to the fact that the 25% number is verified in the credit reports I see. The reasons are many-medical hardship, job loss, mistakes on the credit report, or just plain old bad financial habits enter into a low credit score. (If I had my druthers a household finance class would be a required part of every high school curriculum in the United States-but no one is polling me on the subject. In any event, many, many borrowers for one reason or another are not able to qualify for a mortgage. Here they are-the home they have always wanted is available and they don't have the credit to buy it- and what's more the lack of ability credit-wise is a surprise. Or maybe they knew all along and thought that given some time, the ship would right itself and all would be fine.
With regard to credit there is no magic. Bad credit doesn't disappear-it remains on a credit report for years and years. If there are tax liens, collections, late payments, judgements, repossessions-all that bad stuff that most people would just like to go away-it's going to be with you for a very long time. Unless, that is, you do something about it.
I can't begin to enumerate the number of times I have sat down with a potential home buyer to go through their derogatory credit to have them say, "But I paid that one. I disputed that. That's a mistake."
The Fair Credit Reporting Act is supposed to protect your rights with creditors. In order to do that it has to be enforced. At the current time it is not being enforced without expensive legal action. It is a fact that trying to take care of this yourself is in my opinion, fairly hopeless. If there is one judgement let's say, that is showing unpaid, you can resolve that yourself relatively easily. But dealing with collection companies? Forget about it. Even if you have paid that collection multiple times it may still show on your credit report as unpaid.
Even the President of the United States can't unravel the secret to fixing credit.
I have an idea. You knew I would, didn't you, and furthermore it works. You can file an expensive law suit to correct your credit or you can work with a company that specializes in cleaning up your credit report. The Fair Credit Reporting Act requires that creditors go through a fairly extensive process in order to place a delinquent account on your credit report. Because of the complexity of the process, many creditors bypass the required steps. The success of the company working on your behalf comes from challenging the creditors to produce the proof that allowed them to place the negative items on your credit report. The end result of this is that items that have been placed in error or that have been paid or resolved are cleaned up and reported correctly, thereby improving your overall credit standing. Challenging these companies yourself, working with the bureaus to clean it up yourself has become almost impossible for the individual. The cards are stacked against you. The link below is a 60 minutes piece that was shown earlier this year. If you are thinking you might want to take on the task-please do yourself a huge favor and watch this:
http://www.cbsnews.com/videos/40-million-mistakes-is-your-credit-report-accurate/
My final thought for the day is that you DO need to be careful of the company that is working on your credit. There are some outfits that are only too happy to take your money and not do much. I am always willing to recommend the company that we use in our business as they have a track record of success with our clients. So a referral from your lender or real estate agent is always appropriate. Credit clean up can take anywhere from 45 days to 9 or 12 months depending on the issues. Do yourself a favor-plan your housing purchase in advance. If you think you have credit issues, get ahead of them and go in for a pre-approval six months prior to when you think you wish to move forward purchase. If you need a credit intervention-do it prior to finding your dream home.
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