Recently I was working with a client who pulled their credit score just prior to starting the home buying experience. When they later called their lender they were shocked to learn their credit score was actually 70 points LOWER then the credit report showed.
Mortgage credit reports use a much tougher scoring systems. Here are three things I have read that will reduce scores dramatically and some tips to help repair the damage.
Collections – In most cases the borrower is unaware of the accounts that have been turned over to collections. For example, we might think that our insurance company was responsible for a medical bill and unknowingly it has been turned over to a collection agency. One small $50 collection that is fairly current can lower their score as much as 70 to 80 points. Unfortunately, paying off that collection does not help the borrowers score. To remedy the score they need to call the creditor (medical source that turned the bill over for collection) and discuss the collection and negotiate paying the bill directly and not the collection agency in exchange for a letter directing the collection agency to remove the collection TOTALLY from their credit report and ask for a copy of that letter. Once the borrower receives the deletion letter then the loan officer can get the report updated and re- scored in about 5 business days.
Revolving debt – even though a person pays their bills on time , if they have maxed out their credit card that will lower their scores a lot. For example, if they have a max credit of $300 on a card and they owe $250 , that is maxed out and it will lower their score in the range of 20 to 30 points. If they have several cards maxed out then this will really reduce their scores.
Current Late Payments. You’re stellar record of perfect credit can chip and crack with just one 30 day late payment in just the last 4-6 months. Take Mr. Jones for an example: He had 10 pieces of current active credit and never ever had a late payment with the exception of one three months ago. That late payment pulled his score down over 50 points. Now he needs to call his bank and ask them to delete the late. That could help his score soar 70 points!