When it comes to bruised credit, banks will often say sorry, but “pay your bills on time and come back in 6 months”. This is not particularly helpful advice and often leads to refusal again in 6 months. There are many factors involved in improving your credit score and paying your bills on time is just one part.
How to Fix Bruised Credit so You Can Get a Mortgage
You have two choices :
- Fix your credit on your own, or
- Pay a Credit Repair / Debt Settlement company to do it for you.
With either choice, take the time to read the following article about what is involved then make your decision from there. It's your responsibility.
Please note, this article is exactly what the title says it is: a short course. It does not cover all aspects of this complex subject not does it cover specific circumstances.
Step-by-Step Mortgage Credit Repair
Step 1: How bad is your credit?
The first step is to obtain copies of your credit reports and see exactly what needs to be repaired. You do this by contacting the 2 major bureaus and ordering a copy of your report and credit score
. You can do this by going to their websites.
- Later, you may want to check your report for progress as you move through the steps, so consider a subscription service. Note: when you access your own credit, it does not count as an inquiry against your score.
- Follow the directions and order your reports online. Don’t forget to order your credit score. Order directly from the bureaus. Don’t waste your time dealing with one of those companies offering you a free report. TIP - hidden on the Equifax form you can pay $12 for your score, a lot cheaper than online.
Once you have your reports, treat each separately.
- Examine the first to see what accounts you have open, closed, and anything else you want to know.
- Our main purpose here is to remove all inaccurate information. Bad reporting, fraud and lazy banks can wreck havoc on your score.
Any item that is listed as a public record or that has a late payment is considered derogatory, or bad.
- How many do your have?
- How many of these are accurate?
- Which ones are not?
The inaccuracies are what we work on here. Let say for example, that you have a Sears account that has late payments. And that you have never had a Sears account in your life. Our next step is to dispute this account.
Step 2: Dispute the Inaccuracies
- Use the dispute forms that came with your report and follow their instructions.
- In addition - trust me - write your own letter in your own words. Tell the bureau that the Sears account is not yours and that you have never had one. We don’t want to lie to the bureaus. Include the account number of the Sears account as well. Tell the bureau in your letter that you want them to investigate and to remove this item.
8:00 AM until 5:00 PM ET,
Monday to Friday
Equifax Canada Inc.
Consumer Relations Department
Box 190 Jean Talon Station
|Trans Union of Canada
(For all provinces except Quebec)Telephone
1-800-663-9980 or (905) 525-0262
7:00 AM until 8:00 PM ET
Monday to Friday
Trans Union of Canada Inc.
Consumer Relations Center
PO Box 338, LCD 1
Then you need to check your other credit report to see if this Sears account is also listed with them. If it is, you have three options.
- Wait for the first bureau to confirm that it is not your account. They should share this info with the other bureaus. At least that is the way it is supposed to work.
- Write the other bureau a letter the same as the one you sent to the first one.
- Contact Sears directly and get them to confirm to you that it is not your account. Once they do this, they are now responsible for telling all bureaus. Sear’s phone number should be listed on your credit reports.
- If all goes well, your reports will come back without this account. Takes 30 to 60 days for updates.
- You can do the same thing if the account is yours but there is negative inaccurate information listed on your account. If the account is still open, you have a better chance just contacting the creditor directly to fix the problem. Because we are dealing with inaccuracies, you may want to remind them they are required by law to report the truth. But don’t threaten them until they tell you that they will not fix it. Gather and send them any documents that support your side of the story.
- Do this with all inaccurate information on your report. It requires patience but is not very hard to do, until you run into the bureau roadblocks. And by that I mean when they write back and say, “No, the information is valid and will stay on your report.”
Step 3: Wait it out
- NOTE: If you have accounts that are accurate and negative disputing them will not work. Late or missed payments represent times that you did not have the funds to make a payment or you neglected to pay the date the minimum payment was due. This represents PAST habits right? Before you borrow, ensure you have the funds to make the payments and preferably... pay the balance in full.
- The first thing to know is that in most provinces negative information will be deleted from your reports automatically after 6 years. If you have an account that is close to that 6 year time limit, you might just ignore it. It will be gone by itself.
- Note that the 6 years starts after the account has been closed or after the last activity on that account. But if the account is turned over to a collection agency, they can list a collection on your report whenever they want to and the 6 years starts after they list it. So what could happen is after a company writes off your account as a bad debt, your six years start. But if they sell that account to a collection agency and 3 years later the agency decides to post it on your report, that same account will not be listed twice. And the collection will have another 6 years before it drops off. :(
Step 4: Pay it off
- If you don’t feel like waiting years to improve your credit so you can get a mortgage to buy a house, no matter HOW righteous your cause, the next thing you can do is simply pay off your outstanding balances and any collections. Paying down your current balances on both you positive and negative accounts will improve your score. If you decide to pay off your negative accounts/collections, make sure you close those accounts and that those accounts show up as “closed by consumer” or "paid in full" on your report.
- You may even be able to convince them that you only have a certain amount of money to go around and to accept a partial payment. Once you have an agreement, review the whole deal once again so that all parties are clear. Then ensure they will provide you a letter confirming the transaction once you have done your part. When done, make sure to get the letter because you may need it to prove to the bureau or mortgage lender that the account has been dealt with.
Step 5: Balance it out
- Once you have disputed all inaccurate information, paid down your balances as much as possible, and got tired of waiting, you may be able to improve your credit by adding new credit. But please use credit wisely. This is exactly what lenders are looking for - a demonstration that you use credit wisely and pay as agreed!
- New accounts that are in good standing (the key!) can help improve your score. Keep in mind that your credit score gives more weight to recent developments. What I mean is that a new account in good standing is more important that a negative account that is 5 years old. Get acquainted with when the debt is due and make that payment early!!! Some cards allow a minimum payment to be debited automatically from your bank account so use that to make sure you are never late again. Set up automatic payment whenever you can!
- If it was my report, I would try to have at least 2 good accounts for every one severely bad one. And note that higher balance accounts carry more weight as well. A car loan for example is more important than a credit card with a $500 credit limit. If you are considering purchasing something (like a car) with an installment loan, please consult with us first, however, as it will likely impact your ability to get a mortgage in other ways.
- A person needs at least 2 active trade lines to accelerate the increase of your credit score preferrably with combined credit limits (not balances!) of $2500 or higher. Trade lines can be credit cards, lines of credit, loans, car leases etc. Most mortgages do not show up on your credit bureau and thus mortgage payments do not increase your score! Secured credit cards are a great way to start if your credit is “0” or you have a “reject beacon” or your bank just won't give you a credit card.
- Now use the cards - You must borrow to create a history of your habits of repaying debt. A computer marks the card used or unused, paid or unpaid... so a $1 gum purchase is the same as a $1000 computer, except the $1 debt is easy to payoff. Use your cards at least every 2 months to show your good habits of using and repaying debt as agreed. If you feel you might be tempted, just say one is for gas and the other for groceries and they get paid every month or you quit eating and driving!
- Don’t max out your credit cards ...stay below 30% of card limit for the best score and below 50% for next best score. High balances relative to your credit limits lower your score.
Mortgage Credit Repair Summary
By following these simple steps you can be on your way to great credit and financial security. Fixing your credit is simple, but not an easy task. It takes time and some effort. But it is possible. And you can do a better job for yourself than anyone else. Don’t give up and resort to credit repair doctors and lawyers (who charge an arm and a leg to do the same things I outlined for you here for free) only if you just don't have the time. But ya gotta do it one way or another.
If you want the insider knowledge, I have further information and resources that will help you to do it yourself.
Other Links and Resources