Credit misconceptions
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Someone sent this to me but i can’t remember who. Thought i’d pass it on anyway.


1) “Free” credit report scores are accurate and reflect mortgage report scores. No.
For the purposes of obtaining a mortgage; free credit reports are literally worthless.

2) A foreclosure sale damages credit scores worse than short sale. NO. What affects credit scores are the number of “times” the borrower is late (30-60-90 days); not the actual “event”.

3) A loan mod is viewed the same as a foreclosure/short sale. Yes.

If a borrower is granted a loan mod (despite never being late)…Fannie and Freddie (VA and FHA) view loan mods as a default/ short sale.

It will be a minimum of 3 years from the date of the modification before a borrower qualifies for a FHA Loan and 4 years for conventional financing.

There are some extenuating circumstances so click here for a complete list of wait times for both short sales and BK’s.

4) Every derogatory item hurts your credit score. No.

Items more than 4 years old do not affect your score. California law deems debts over 4 years old are not enforceable.

Collection accounts are often “sold and resold” (creating a “rolling” effect) initially affecting credit scores long after the original debt has long since expired.

However disputing debt over 7 years old with the 3 credit bureaus will cause the bureaus to remove the item(s) and bar collection agencies from re-reporting the debt.

Also a borrower can file a complaint (on line) with the Attorney General of Calif.
A rapid “re- score” can be quickly accomplished by an experienced loan officer. The cost is typically $50 to $150 per derogatory item.

5) Every collection account needs to be paid off to obtain a loan. No.

Do not pay off collection accounts (or any old “derogs”) before the COE. (close of escrow) Old derogs paid before COE will result in lower credit scores!

I know that’s counter intuitive but that’s the way the system is rigged.

Whether the item needs to paid at COE, is at an underwriter’s discretion when the loan is approved. It will depend on the amount and how old the item is.

6) A divorce decree legally discharges a spouse from the responsibility for a debt that was incurred by both parties. Wrong!!
A divorce court can’t absolve either spouse form a joint debt. But a divorce decree can (for the sake of the pending mortgage application) allow me to rescore your buyer’s credit report and raise the scores.

7) Co signing for a loan / credit report will be counted against the debt to income ratios when qualifying for a new mortgage. The answer is mixed.
If the “CO SIGNEE” (“child”) makes 12 loan payments directly FROM THEIR OWN PERSONAL ACCOUNT… directly TO THE CREDITOR…the debt will (usually) not count against CO SIGNER (parent).

If a consignee is paying the cosigner directly with cash (or by check) endorsed to the co-signer, the payment WILL count against the co-signers DTI.

8) Credit scores can be improved quickly if the loan applicant is added to another person’s account(s) with a superior credit score. TRUE.

However if a co signee misses a payment or goes on a shopping binge at Nordstrom’s, both borrowers credit scores will suffer.

9) Court judgments are only reported for 7 years. The answer is mixed.

Judgments are reported for 7 years BUT are valid for 10 years. Judgments can be renewed for another 10 years by refilling at the same court house by the prevailing party (winner).
Typically after 7 years the judgment drops of the buyer’s credit report BUT the judgment has “morphed” into an “abstract” judgment and attaches to their home after the grant deed is recorded at the county courthouse.

Often the homeowner will not discover the “abstract” until they sell (or refi) the home (years later) and the abstract appears on the title report.

10) Closing credit lines and accounts with zero balances will raise credit scores.

To learn what really works in today's real estate market CLICK HERE

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