I was working with a client who was shopping for various properties in the Paradise Valley real estate market and they asked a question about buying again after collections.

Getting a collection item reported in your credit history will greatly impact your FICO score in a negative way. There are ways you can take control of the situation and remedy or remove the collection account altogether from your credit history. Let’s start here:

• What is a collection item?
• Can I fix a collection item?
• How does a collection item affect my FICO score?

Collections: What Is a Collection?
An account is in “collections” when the past-due amount is purchased by a credit agency who will attempt to collect the balance. Agencies buy them at a reduced rate, and they have the ability to find out your residence and place of employment. A collection item stays on your credit report for 7 years, even if it is paid off at a later date. It’s a good idea to read all comments placed on your credit report by creditors and collection agencies with great care and attention.

Collections: How You Can Fix Them
If you have an account in poor standing, the collection agency will likely contact you by mail. You usually get 30 days to dispute the information in the letter, so make sure to read the letter in the event there are mistakes. It is also a good idea to keep notes and copies of all correspondence and communication between you and the creditor and/or collection agency. Creditors, being the ones with the negative record in their system, are best to negotiate with because they can choose whether or not to notify the credit bureaus to remove the collection status from your credit report. You should make sure to get any agreements in writing before paying the debt. It’s a good idea to familiarize yourself with your rights under the Fair Debt Collection Act.

Collections: How Do They Impact Your Credit?
Remember, an account in collections will remain on your credit report for 7 years—even if it’s paid. Once paid, the collection account will reflect as “paid in full” and will no longer continue to pull your FICO score down. Even after the debt is paid, you can still dispute the item if you want. The best way to prevent collections is to stay on top of your bills, update your postal address and information when you move, and habitually track your credit report for any changes.

Buying Again After Collections
Buying a home again after collections is something that can be done, but you will want to work closely with a loan officer who can help you get approved. It is still possible to buy again after collections, but there are widely different rules about how to deal with them between lenders. You should try to find the right loan officer at the right lender if you plan to buy again after collections.

Buying A House Again After Having Collections is a post from: mesa-az-mortgage.com

Credit Scores: Important

When applying for a mortgage the first thing your Loan Officer will look at is your credit report. By pulling all three bureaus, Experian, Equifax and TransUnion, We can determine your level of risk and your interest rate along with the likely hood of getting you a mortgage loan.  At this time the minimum credit score to obtain a mortgage is a 620.

It is a good idea to check your own credit report at least once a year with all three bureaus. Estimates have shown that 75% of all consumers have some type of inaccuracy on their credit report. You may do this by going to Experian, TransUnion and Equifax websites.

What Factors Determine a Credit Score?

• 35% is your Payment History
• 30% Amounts Owed
• 15% Length of Credit History
• 10% New Credit
• 10% The Way Your Credit is Used

1. Payment History:

Your Payment History is a major factor in determining your credit score. Delinquent accounts make up the majority of poor credit and the more recent the derogatory the more impact on your score. A current 30 day late is worse than a 60  or 90 day late 2 years ago. Collection accounts are also common and bring down your score, however please discuss paying off any Collection with your loan officer, as doing so may result in a lower score. This may seem backwards but what happens is your collections last activity date becomes the day you pay it off which makes the account look more recent.

2. Amounts Owed

The Amount owed is also a large factor in determining scores, the lower the balance is to your limit the higher your score. There are many times when I have had a borrower  pay down their credit cards in order to increase their scores. Do not close credit cards that have a  good pay history, this can have a negative impact on your credit. Have 3-5 credit cards with low balances rather than 2 credit cards that are “maxed out”  again, this is a great way to better your score by keeping the balances low to the limit.

3. Length of Credit History

The basic rule here is the longer the history, the better. This goes back to not closing long standing accounts.

4. The Way Credit is Used

All balances on revolving accounts (ie. credit cards) should be 10% lower than the limit, ideally. Remember that on Joint user accounts both parties are responsible and regardless of who is using the card or cards, it will reflect on both credit reports.

5. New Credit

New credit will temporarily decrease your score for a month until unrated status goes away. It is best to have a good mixture of credit such as a mortgage, car note, and 3-5 credit cards. Please talk to your loan officer before opening any new accounts, as this could effect your credit score which will also effect getting approved for a mortgage loan.

Credit Scores: Important When Getting A Mortgage is a post from: mesa-az-mortgage.com