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What does credit repair actually mean?

By
Mortgage and Lending with All Western Mortgage NMLS 14210

When people think of credit repair they usually think about derogatory items that they must dispute in order to get a better credit score.  The first thing you do when you have collections accounts and charge-offs is to hire a credit repair company to try and get them removed.   

 

An Arizona credit repair company will usually charge you a onetime setup fee and then a monthly charge of anywhere from $49-99 per month.  Most Arizona credit repair companies will then pull a credit report and attack everything possible on your credit.  They will dispute every collection account, every charge-offs, every inquiry, every late and so on.  They will send out dispute letters to all 3 credit bureaus for every account they want to dispute. 

This means that if you have 10 derogatory accounts reporting to all 3 credit bureaus they will send out 30 letters altogether.  Once the letters goes out you wait 30 days and see how many accounts got deleted.  The following month you start the process again and send out a different set of letters for all the accounts that were verified and then you wait another 30 days.   This process is repeated for 6-12 months or until you are satisfied that enough progress has been made.  This means that the more months you are in the program the more money they make.

As a borrower, your objective is to be in the program as little time as possible so you can get into your home right away.   It seems like there is a conflict of interest from the very start between the client and the credit repair company.

What they also don’t realize is that many derogatory accounts do not have any impact on your score at all. This means that if you delete certain collection accounts you would expect your credit score to go up but in fact your score will stay exactly the same as it was before.  Attacking those collections accounts was a waste of time and money to begin with. 

The reality is that they don’t really know ahead of time which accounts have an impact on your score and which ones do not so they just dispute them all.  In addition, there are certain accounts that once updated will actually drop your score.

I recently had a client that started credit repair before he came to me with an outside company on some collection accounts that were over 3yrs.  Those accounts came back verified but then the collection company decided to update the activity date which really dropped their score to a much lower score than what they started with.  Those accounts should have never been disputed and now the borrower has to work even harder to get the scores up.

 Although there are about 20 techniques in improving credit, most credit repair companies will only focus on disputing accounts.   I myself use an outside company when I find it necessary to dispute certain account so I am not against credit repair companies.  What is very important to know is that less than half of the people that have a low credit score ever need to dispute items on their credit and when they do need to hire a company go with someone that charges a per item or flat fee and not a monthly fee. 

As a loan officer, when I think of credit repair, I think about the fastest way that I can get someone to a target credit score.  If I am doing a FHA loan and I need a 620 credit score then I will use every technique possible to get them to that credit score.  If I need to get them to a 660 then I will try to figure out what is the fastest way that borrower can get to a score of 660.  Most of the clients that I work with want to buy a house within 30 days or sometimes they are already under contract.  This means that I have to use a totally different strategy then someone who is buying a new built and has 6 months to fix their credit.

When I meet with a client I need to set up a customized plan that will suit each borrower individually.  Very rarely do I get 2 people that need to do the same thing.  Below is a list of a few things that I need to know in order to figure out what is the best path to getting them to where they need to be:

How soon are you looking to buy or how much time do we have to fix the credit?

How many points do we need to raise your score by?

How much money do you have to work with?

Which accounts do we need to attack?

Which derogatory accounts are affecting the credit and which are not?

 

Once I have the whole entire picture, I will pull credit and analyze each account line by line.  The goal is to get them to be ready to qualify within 30-60 days.  I then put the plan on paper so they are very clear on what needs to be done.   If, for example, someone has 20 collection accounts and maybe 6 chargeoffs I may recommend they pay off one collection or sometimes settling 1 or 2 chargeoffs depending on how many points I need to raise the score. Sometimes I may recommend they get a secured card and once in a while I may recommend they dispute a certain accounts.

 

Sometimes paying a collecting account off may increase your score over 100 points and sometimes paying off a collection account will drop your score 30-40 points.  That is the reason you don’t dispute everything and why it is very important which one to pay off and which one to leave alone.  A lot of it has to do with the balance and the age of the account. I will try and talk about this more in my future blogs but that is another whole topic in itself.

 

If you have been on a credit repair program for several months and it seems that they you not making a lot of progress you need to revisit your strategy.  If all you are doing is disputing accounts you may be in it for a very long time.

 

- The Loan Doctors

 

 

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Comments (3)

Tatyana Permanova
Highlight Realty - Fort Lauderdale, FL
561-756-6962 - Miami, Fort Lauderdale | Boca Raton RE

Very helpful information!!!

Thanks for sharing!!!

 

Apr 28, 2011 03:09 PM
Jark Krysinski *PREC (Personal Real Estate Corporation)
REMAX CREST REALTY WESTSIDE - Vancouver, BC
TeamYVR Team Leader, BA,ABR,IRES,IMSD,LLB

Hi Loan Doctor - Thanks for this information.  I want to give my clients who may not have "ideal credit" some background information on where to go to repair it and your article was useful in this process.  Best of luck with your work.  

PS. if you are looking to expand your referral network in Vancouver, BC, Canada send me a shout and we'll discuss.

Jul 13, 2012 03:18 PM
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

End-consumers and Realtors must check references of credit repair companies. There are good credit repair professionals, who emphasize proper handling of consumer credit, and not just short term tricks to remove derogatories. Many potential home buyers are only 3 to 6 months away from repairing their credit and qualifying for a home. However, time isn't the only factor. They must follow the advice of a professional to accelerate their credit repair and to avoid making simple mistakes that can cause big credit score setbacks.

Aug 14, 2017 07:04 PM