FROM BAD CREDIT TO GREAT CREDIT
DISCLAIMER:
My name is Ron Orr, (RonOrr.com) I have helped people in all areas of real estate since 2002. I am a Real Estate Broker with MinnesotaInvestors.com, Inc. Before answering questions below, I am not an attorney, a CPA, or an accountant. I suggest you seek legal, and/or a competent CPA's advice before making any decisions. What I am typing below is based on extensive research I have read. It's suggested that you do your own research on the topic of he information below, it's in no way to be used as: legal, tax or financial advice.
PART 1: BAD CREDIT
Before you decide to give your house back to the bank, walk away, go bankrupt, or fall behind on other payments, please read below as to the damaging effects all of this can have on your credit and life. The following on bad credit is written to try to help prevent this from happening to you. After you read all of this, I'll go into part 2, how to improve your credit score.
20-25 YEAR AFFECT OF BAD CREDIT ON YOUR LIFE:
YEAR 1: LOSING A HOUSE TO FORECLOSURE
Dealing with non-stop calls from your banks' collection department
Dealing with threatening debt letters from your bank and notice of default letters
Dealing with late fees and penalties, accruing daily
Dealing with 1st lender, 2nd lender or your association initiating a foreclosure action
Dealing with repeated unsuccessful attempts to get through to your bank by yourself
Dealing with an unreasonable and unsuccessful repayment plan
Dealing with giving the bank all of your private financial paperwork which may later be used for collection methods against you
Dealing with negotiating an unsuccessful loan modification
Dealing with getting calls from your bank at work, to your co-workers, or boss
Dealing with your family and kids getting calls from your bank at home
Dealing with bankers calling neighbor's or having them knock on your door to get a hold of you
Dealing with a banker knocking on your front door to serve your spouse or kids paperwork
Dealing with unpaid water bills and taxes, eventually becoming liens on the house
Dealing with day to day money stress, affecting your life and your families
Dealing with your house being publicly advertised in the newspaper for foreclosure
Dealing with someone to stop by and research the property for the bank for a BPO
Dealing with a sheriff sale deadline date
Dealing with a redemption period time limit and deadline
Dealing with possibly being evicted at the end of redemption
Dealing with possibly cleaning the house very well for your bank under "cash for keys"
Dealing with a possible eviction filed on your record, later making renting hard
Dealing with continued missed payments showing up on your credit report as rolling lates
Dealing with over aggressive REO agents visiting trying to get data before the bank owned listing
Dealing with the house listed with a foreclosure sign in the front yard of your neighorhood after the bank gets it back
Dealing with moving out into a cheaper place while in foreclosure, may actually hurt your "bankruptcy means" test
YEARS 2-5:
Receive collection calls from collection companies for years at work, home, during dinner and family time
The other lender(often the 2nd lender) may seek to collect on wage garnishment from the promissory note
Credit score takes a bigger dip with a foreclosure Vs. a short sale
Penalties can accrue for years on unpaid balances
High-interest can accrue for years on unpaid balances
A lender may not hire an attorney to find you for a couple of years
It may take years before you realize that the debt forces you into bankruptcy, starting a new time clock
YEARS 5-7:
Up to 5-7 years from foreclosure to get financing with lenders backed by Fannie Mae and Freddie Mac
Up to 6 years and 180 days for the creditor to file the judgment
Up to 7 years of employment background and credit checks with foreclosure shown on your credit report
Up to 7 years with foreclosure on your credit report limiting your job options or not getting certain jobs at all
While in Chapter 13 bankruptcy,repayment plan could show up as rolling late's for years on your credit report
Missing even 1 payment on a 5 year bankruptcy repayment plan possibly accrues all interest and penalties since day one.
Attorney's fees can accrue very high the entire time for every letter, or call for many years for unpaid collections
YEARS 7-10:
Foreclosure shown for 7 years on your credit report
Bankruptcy Chapter 7, 11 and 12 remain on file for 10 years from the date of filing
Bankruptcy Chapter 13 remains 7 years from the discharge date, and for a maximum of 10 years.
Tax Liens-State and Federal -if paid, remain on your credit report for 7 Years from the date of filing
Civil Judgments- 7 years from the filing date, or from the date of satisfaction.
Bankruptcy affects employment background and credit checks limiting you on certain jobs or getting a job
Bankruptcy affects receiving high-security clearance type jobs
Judgments can be collected upon for up to 10 years
Judgments are paid through bank levies, all types of property liens, or wage garnishment
YEARS 10-20:
Judgments can be renewed a 2nd time for another 10 years
When Judgment is renewed a 2nd time, you could be levied by your bank, receive liens, or wage garnishment
YEARS 20-25:
Through the next 10-year renewed judgment, you may still have money garnished from your weekly paycheck, taking years to pay back
Tax Liens- State and Federal- If not paid, they stay on your credit report indefinitely.
Child Support-Can stay on credit indefinitely
TIMELINE RECAP FOR CREDIT REPORT AND MONIES DUE:
Lifetime for unpaid state tax liens
Lifetime for unpaid federal tax liens
Lifetime for unpaid child support
Lifetime positive paid trade lines
20 Years from the end date of the 1st judgment followed by a 2nd filed renewed judgment
10 Years on a credit report for a closed positive account
10 Years for Bankruptcy Chapter 7, 11, 12 from the date of filing
10 Years maximum for Chapter 13
7 Years maximum since Chapter 13 discharge date
7 Years a foreclosure is on your credit report
7 Years as paid since date of last activity on collections and judgments
7 Years for paid state tax liens from the date of filing
7 Years for paid federal tax liens from the date of filing
7 Years for a deficiency judgment to remain on your credit report
7 Years for civil judgments from the filing date, or from the date of satisfaction
7 Years for child support payments from the date of closure
7 years of employment background, credit checks with foreclosure on your credit report
7 years of employment background, credit checks with bankruptcy on your credit report
7 years of not getting a high-security clearance job, due to bankruptcy and/or foreclosure
7 Years for max reported financing when lender is backed by Fannie Mae
7 Years for max reported financing when lender is backed by Freddie Mac
6 Years and 180 days a creditor can wait to file a judgment
5 Years a 5 year Chapter 13 repayment plan could show up as rolling late payments
5 Years accrued interest and penalties can accrue on Chapter 13 bankruptcy if you fail
5 Years for earliest reported financing when lender is backed by Fannie Mae
5 Years for earliest reported financing when lender is backed by Freddie Mac
3 Years for financing when lender is backed by FHA
2 Years for hard inquiries on your credit report
2 Years charge-offs and liens affect your score a little less
2 Years from Chapter 7 bankruptcy discharge date to get a FHA loan
1 Year into Chapter 13 bankruptcy to get a FHA loan
1 Year for financing when lender is backed by FHA and "extenuating circumstances"
3 TOP NEGATIVE FACTORS ON HOW BAD CREDIT AFFECTS YOUR DAILY LIFE:
Levies
Liens
Weekly Income Garnished
Levies-This is where the bank levies and takes money out of your bank account without notice. Depending on how much money you owe, this could happen for years. This could happen from any creditor that has a judgment against you, or if you owe any tax liens.
Liens-Liens can be placed in people's name for specific locations in the county records. Whenever you try to sell or pass title to someone else through houses or vehicles, liens can be placed on the items, where upon these liens need to be paid in order to pass clear title.
Weekly Income Garnished-Imagine having a credit secure a position to garnish up to 25% of your weekly paycheck. Depending on how much you owe, this money could be garnished for months or years from your paycheck. When you are hired to a job, remember the IRS receives your tax information.
What makes matters worse with the above is, not only will it feel like they are taking money out of your bank accounts, properties, or paychecks forever, but don't forget all of the penalties, high-interest, and very high attorney's fees that just keep accruing along the way for every letter sent, call made, and other items in the collection process..
Note: The bank levies bank accounts to which the same SS# or tax id is attached.
Note: MN has a $300,000 homestead exemption law at this time for your personal residence
OTHER NEGATIVE FACTORS ON HOW BAD CREDIT AFFECTS YOUR DAILY LIFE:
-It's very hard to apply for a home loan with bad credit
-Bad credit limit's your finance options, often giving you a loan with much higher interest rates
-You often won't get approved for a credit card
-Credit cards you are approved for will likely come with a very high interest rate
-Your auto insurance may be denied, or it may be a higher rate
-You may not be able to get a auto loan at all, forcing you to drive cars that often need repairs
-You may not be able to get a bank account
-You may not be able to open up investment accounts
-You may be denied a job when a credit check is done
-You may be forced to only get high-interest department store cards
-You may not be able to increase your credit line
-You may not qualify for a home equity line of credit in the future
-You may be forced to pre-pay for minutes on a cell phone instead of a contract
-You may not be able to get cable tv, or have to pay a very large deposit upfront
-You may have to pay a deposit upfront with your local utility or electric company
-You may not be able to get a college loan, or start a career
REMOVABLE ITEMS:
Note: Removed items off of a credit report will still show up on county public records
where a lender could do a search to find them prior to a loan approval.
Foreclosures
Short Sales
Bankruptcies
Judgments
Charge-Offs
Collections
Repossessions
Late Payments
Inquiries
NON-REMOVABLE ITEMS:
Sally Mae and DOE student loans
Child support payments
Tax liens
BEFORE YOU CAN GET A HOME LOAN:
Tax Liens-Must be on a repayment plan with a written verification letter from State, or the Federal Government
Back Child Support-Must be current, or being repaid through wage-garnishment
Judgments-Must be paid in full, prior to final approval, sourced or gift on funds
Collections-Will review each one individually, a determination is based on individual circumstances
Bad Checks-Must be paid in full prior to Pre-Approval for those on the credit report
Chapter 13 BANKRUPTCY:
There must be 12 consecutive months of on time payments on all accounts
(including utilities, cell phones,etc) from the filing of the chapter 13 bankruptcy.
Chapter 7 BANKRUPTCY:
There must be 24 months of perfect credit from the disposition of a Chapter 7 bankruptcy.
FORECLOSURE:
1 Year: Extenuating Circumstances for financing 1 year out of foreclosure
The FHA Underwriters have the ability to manually underwrite the file and get an "exception" if there are extenuating circumstances (i.e. Medical, Death, multiple job loss). Buyers would need to write out a very detailed explanation of exactly what happened, and will need to submit supporting docs (legal, medical, etc). Each File will be reviewed by Underwriting to determine if the circumstances warrant "Extenuating". If so, they will grant Pre-Approval.
*3 Years since last foreclosure if you don't qualify for above
*2-3 Years since short sale with Fannie Mae
LOAN PROGRAMS STARTING AT A 580+ CREDIT SCORE :
Alternate Credit Sources
-580+ credit Score
-12 month's into chapter 13
-2 years from chapter 7 discharge
-3 yrs from Sheriff's Sale
-12 month's Verifiable Rent (cancelled checks or Verification Form from management Company
-Insurance Bill - letter from Agent of 12 month's on time payments
-Utilities - letter from Company of 12 month's on time payments
580+ Mid Credit Score
580+ Mid Credit Score
580-619 Guidelines:
-12 month's Verifiable Rent Payments - On time
-3.50% of Purchase Price in Seasoned Funds (must be in your bank account, 60 days+)
-2 Open Trade Lines (active accounts) on your credit bureau reports
580+ Mid Credit Score* 60+ day seasoned funds, must have 3 open trade lines with a 12 month history
Federal Housing Administration Loans - OK to 580 scores
- Minimum 580 minimum middle FICO score required
- Great for first time homeowners
- 30 Year Fixed Rates Only
- Low, government sponsored, monthly Mortgage Insurance payments
- Owner Occupied Only
- 12 months verified rent history required
- Down payment MUST come from borrowers own funds
- Gifts allowed for all closing costs
- Compensating factors required for 580 scores
- NO declining market restrictions
PART 2: GREAT CREDIT
Credit Score % Breakdown:
35 percent - An individual's history of making credit payments on time
30 percent - Amounts owed vs. Credit Available
15 percent - The age and length of an individual's open credit lines
10 percent - The frequency with which someone applies for new credit
10 percent - Types of credit used
TOUGH CHOICE: 3 CHOICES TOWARD IMPROVEMENT
A. Manage your bills and pay them off
B. Negotiate collections/judgments with creditors
C. Test for Chapter 7, seek advice on filing for bankruptcy
REBUILD A POSITIVE CREDIT HISTORY: 3 OPTIONS
A. Add a primary user's positive trade line which increases utilized credit to available credit ratio
B. Deposit cash into a CD at banks, take a loan out on the CD, make payments on time, have reported
C. Deposit cash on new secured credit cards, make payments on time, have reported to credit bureaus
SECURED CREDIT CARD SOURCES:
Credit.com secured cards
Credit.com for bad credit
Credit.com pre-paid and debit
Credit.com cards for no credit
CreditCards.com pre-paid-debit
CreditCards.com for bad credit
Secured credit cards
CREDIT REPAIR:
Phone/Voicemail: 763-634-1766-These calls will be answered by a loan officer and/or a buyer's agent
ron@minnesotainvestors.com
NEVER BE LATE: One 30 day late payment could cause your score to drop 100-140 points
NEVER MAX OUT CREDIT CARDS:
(Goal: Balances under 20% preferred on all, then 30%, then 50%, then 70%)
GET SECURED CREDIT CARDS: Your on-time payments will create a positive payment history
DISTRIBUTE BALANCES EVENLY: distribute over all credit cards
(Goal: Balances under 20% preferred on all, then 30%, then 50%, then 70%)
CREDIT MIX: Establish various types of credit, mortgage, car loan, credit card account
DON'T CLOSE UNUSED CREDIT ACCOUNTS:
(This may be your long-term credit history which factors into your score)
INCREASE CREDIT LIMITS ON YOUR CREDIT CARDS:
(hIgher limits on your credit cards lowers your utilized/available credit ratio percentage)
LIMIT YOUR CREDIT INQUIRIES
(Each one can lower your credit score a few points)
DON'T OPEN TOO MANY ACCOUNTS WITHIN A SHORT PERIOD OF TIME
GET A CHECKING OR SAVINGS ACCOUNT
(Always keep a positive balance)
AVOID DEBT CONSOLIDATION PROGRAMS:
(This may continue to report as rolling late payments for years)
WATCH FOR CREDIT CARDS THAT REPORT YOUR HIGHEST BALANCE AS HIGH LIMIT
(Some credit card companies will report your highest balance to date, as the new credit limit, making you appear maxed out)
CREDIT BUREAUS MAY UPDATE BALANCES AT DIFFERENT TIMES OF THE MONTH THAN YOUR PAYMENT
ADD POSITIVE TRADE LINES TO YOUR CREDIT REPORT
HAVE A PROFESSIONAL NEGOTIATE CHARGE-OFFS, COLLECTIONS & JUDGMENTS AFTER A CLOSING
OPEN BUSINESS CREDIT, IT DOESN'T SHOW UP ON YOUR PERSONAL CREDIT REPORT UNLESS LATE
BANKRUPTCY INITIALLY HURTS YOUR CREDIT
CREDITORS ARE NOT REQUIRED TO REPORT TO THE CREDIT BUREAUS
HAVE PAID COLLECTIONS AND JUDGMENTS DELETED OFF VS. REPORTING AS 'PAID IN FULL'
BECOME AN AUTHORIZED USER ON SOMEONE ELSE'S ACCOUNT
DISSOLVE JOINT ACCOUNTS AFTER A DIVORCE
CONTACT ME:
Please answer these questions on your first Voicemail/Email before looking for a home
1. Credit score of everyone to be on the loan
2. Last Bankruptcy, Foreclosure, or Short Sale for everyone to be on the loan
3. How long of consistent work for everyone to be on the loan
4. Monthly payment you can afford
5. Total money available you have
6. Your desired move-in date
Phone: 763-634-1766-These calls will be answered by a loan officer and a buyer's agent
ron@minnesotainvestors.com
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