With
tighter restrictions on loan approvals and credit scores becoming an
integral part of qualification, many consumers find themselves in a
panic due to circumstances that seem to be out of their
control.
Recently we were
hired by a consumer who had an excellent Fico score of 780 just a
month earlier. He was negotiating on a purchase of a
second home and was just about ready to apply for a loan. Since
he needed to travel for business and was very concerned about his
credit, he decided to have all of his bills paid automatically online
to insure that his credit would be protected.
Unfortunately, he did not realize during the set up with BOA
that the transaction did not thoroughly process. His good
intentions backfired and when his banker pulled his credit report
three weeks later, it indicated a late payment on the BOA
mortgage of his primary residence thereby dropping his score
down to a 670. Since his scores were very high, the late
payment prompted an extreme score drop (the higher the score, the
more of a drop with new late payments). With a 680 score, he
now could not even get an approval for the loan. The client and
his wife had spent a long time searching for the property and knew it
was a wonderful deal. Needless to say, they were highly emotional and
disappointed with the news.
Luckily, the
banker advised him to get current on the payment and to call us
immediately before contacting the creditor direct. We were
hired within the day and within a week were able to negotiate the
late payment off the credit profile. This resulted in a very positive
outcome to a difficult situation...but things don't always turn out
that way.
If this client
had called BOA himself and, unbeknownst to him, had given them
information he believed would correct the late payment but not insure
it to be removed, he might have made our job more difficult. This
would then cause the process to take much longer. It could have
also cost him the property since he would have had a limited time to
get mortgage approval based on the contract he signed with the
seller. He may have had to start over looking for a new
property if we were able to have success 3-5 months later.
Credit improvement and correction of information with credit bureaus
is confusing and many times counterintuitive. What may seem
quite logical to a consumer in terms of requesting a removal of a
late payment or collection may actually be the worst thing they could
do.
Another example
would be a consumer who cancelled service with an Internet provider
but was billed a fee a few months later. He did not agree with
the service provider that he owed the fee and when he called to
argue, there was no resolution and a series of heated
conversations ensued. He refused to make the payment
and had words with three separate managers over the course of a
month. Five months later, when he was about to apply for
financing on a property he and his wife were purchasing, his banker
informed him that the scores were much lower than previously during
the pre-approval process. Upon further review, he noted that
the $75 fee with the Internet provider had been placed on his credit
as a collection in the past few days. His Fico score dropped
over 100 points to a 680. He was so overwhelmed and upset that
he immediately called the creditor and paid the fee. He
thought this would resolve the problem but was shocked to find
out his actions did not cause any change.
Unfortunately, just because a bad debt is paid does not mean it
automatically disappears. By law, the creditor is only
obligated to mark it paid, however, this will not cause an increase
in the credit score. After much frustration he was referred to
us by his CPA. Since the account was paid and there was a long
documented history with the creditor, it was very difficult for us to
remove it. It took 4 months to remove the collection and at
that point, he and his wife lost the home they had fell in love
with. Because the collection was paid, it was much harder for
us to remove it, plus the long documented fight with the creditor
made it even more difficult to resolve the problem. If he had
not paid the account immediately when he found out it was listed on
his credit, it would have made a world of difference. If he had
not tried to fight with the creditor in such a negative way, it could
have been a much easier and quicker process for us to succeed in
making the corrections.
When stumbling
into such a frustrating situation during negotiations on a purchase
or in the midst of refinancing, applicants should call us first
before leaping into action and risking the possibility of ruining
their ability to enjoy a speedy and positive resolution.
