Tucson AZ Home Loan Info

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Credit Tips For My Borrowers (Stuff You NEED to Know)

What affects your credit score: Mike in Tucson, Mortgage LenderCredit tips for my borrowers, by Mike in Tucson, mortgage lender

The question:  "I want to improve my credit.  Should I pay off charge-offs and collections?"

How the system works:

Take a look at that yellow piece of the credit pie on the right.  Length of credit history is 15% of your overall credit score.

Among the data tracked by the Credit Bureaus is this little gem:  "date of last activity."  It shows on your credit report as DLA.

Let's say that you've come to me for a purchase money mortgage because your agent referred you.  Let's say further that you did some dumb things six years ago when you were in college, and you know that a few derogatory accounts are going to show up from that time.

The old beater you had in college was repossessed by the car dealer whose billboard still reads "NO CREDIT?  NO PROBLEM!  The dealer sold the car at auction, and sent you a bill for the difference.  The bill was for $580.  You didn't pay it.  The car dealer sold the debt to a collection agency.

Your credit report today says "DLA 11/2004."  If you do nothing, this derogatory collection account will fall off your credit report next November, after 7 years.  That's if you do nothing.

But you're making good money now working for Raytheon as an engineer, and you think to yourself "I can pay that.  I think I'd better get that paid and off my credit report before I go see the mortgage guy..."

You get out the checkbook, call the collection company and pay the $580.

What that means to you:

  • Derogatory accounts can be reported for seven years from the date of last activity.  What would have fallen off in 2011 will now be reported until 2017.  Oops!
  • You paid a debt, and yet it's more than likely that your credit score will go down in the near term.

If, on the other hand, you pay off a collection or charge-off that is 12 to 24 months old, it's likely that your score will improve!

Takeaway:

If you're my borrower, please call me before you do anything.  Let's talk it over, and improve your chances of qualifying for that home you want to buy from your favorite agent!

____________________

I'm Mike in Tucson, your preferred Tucson Mortgage Lender.

NMLS #223495

SUNSTREET MORTGAGE llc ~ Correspondent Mortgage Bank
Offices (AZ) Mesa, Tucson, Nogales, and Albuquerque, NM.

 

Comment balloon 30 commentsMike Jones • November 23 2010 07:03PM

Comments

Mike - It's interesting isn't it how credit reports don't really make a lot of sense.

Posted by Larry Brewer - Benchmark Realty llc (Benchmark Realty LLc) about 10 years ago

Thank you for taking the time to explain the stuff everyone needs to know about credit and debt and credit scores. It appears what makes common sense does not always work to one's advantage.

Posted by Emily Medvec, Realtor | Serving Santa Fe & Northern NM (eXp Realty LLC) about 10 years ago

The bottom line see a loan professional before you do any thing!

The dirty secret of credit repair is that their is nothing you can't do yourself with a little guidance from A loan professional!  Not a credit repair scamer!

 Great information, Mike!

Nill

Posted by William J. Archambault, Jr. (The Real Estate Investment Institute ) about 10 years ago

Perfectly clear!  Not - wow, that just doesn't make any sense at all at this point.    Great information that I will eagerly share with my buyers!

Posted by Dagny Eason, Fairfield County CT, CDPE Homes For Sale and Condo (Dagny's Real Estate) about 10 years ago

Mike

Thanks for sharing the credit tips for borrowers, and yes it stuff they need to know.

Good luck and success.

Lou Ludwig

Posted by Lou Ludwig, Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC (Ludwig & Associates) about 10 years ago

Lou,

You're most welcome!

Dagny,

Like Bill said, tell 'em to see a loan professional before changing anything about their credit!

Bill,

Amen & Amen!

Emily,

That's just the point.  Just because it makes common sense doesn't mean that you'll get the result you expect.

Larry,

Right you are; thanks for being the first to comment!

Mike in Tucson

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) about 10 years ago

Good information --- a would be buyer needs to talk to a lending professional immediately -- and not second guess what will be best for themselves.

Posted by Bob & Carolin Benjamin, East Phoenix Arizona Homes (Benjamin Realty LLC) about 10 years ago

punished for doing what should/might be constued as the right thing to do

Posted by Jay Beckingham, Seniors ROCK! (Christensen Financial Mortgage) about 10 years ago

Jay,

"Ours is not to reason why; ours is but to do and die."  The important thing is not to do anything until you understand the consequences of your action.

Bob & Carolin,

You've got it!

Mike in Tucson

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) about 10 years ago

Great information Mike. I wrote an article a while back on my Wordpress blog about Increasing a FICO credit score that details what you need to know about improving your credit.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) about 10 years ago

Interesting information.  I agree with Jay who said that they are punished for doing what is right.  Credit scores are a mess that we somehow got into and are not understandable or reliable.  I've got a great buyer now with no credit score because of paying cash, having no credit cards, etc.  What will happen to them?

Posted by Barbara S. Duncan, GRI, e-PRO, Executive Broker, Searcy AR (RE/MAX Advantage) about 10 years ago

Mike, that is very good information, I didn't know if you paid off a collection, it made it come back up on your credit report. Thanks!

Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) about 10 years ago

Mike, this is good information. I would have thought paying off the debt would have been a good thing. Thanks.

Posted by Michael Setunsky, Your Commercial Real Estate Link to Northern VA about 10 years ago

Great reminder.  We often don't explain it this clearly to buyers.

Posted by James McGary (Agents Set Free, Inc) about 10 years ago

Thank you for sharing, great post

Posted by Kamal Salim, A Superior Level of Service ! (Lokation Real Estate) about 10 years ago

Isn't that crazy?  Goes against all logic.......and underlines the need to get professional advice!

Posted by Ann Allen Hoover, CDPE SRES ASP e-PRO Realtor - Homes for Sale - AL (RE/MAX Advantage South) about 10 years ago

Ann,

Truer words were never spoken.  :)

Kamal,

You're welcome.  Thanks for stopping by to comment!

James,

Why don't we require a course on Credit in High School?

Michael,

Yep!  It depends on what kind of debt, and how old it is.

Missy,

Maybe a course on this would be good for CE classes for Realtors.

Barbara,

That borrower will have to establish credit before being able to qualify for a mortgage.

Bill,

Thanks so much for the link!  We need more education about crredit.

Michael,

It's not intuitive, is it?

Mike in Tucson

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) about 10 years ago

I like your post and your style.....I am an advocate of just paying cash (if you have it) for what you need...I am sick of the current credit systems who brand you over time like your a criminal....

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) about 10 years ago

I've told people this before and it's a crying shame that it's true! I've also seen instances where, just because you contacted the collection agency about the debt, they changed the DLA.

Posted by Julia Odom, Chattanooga Homes for Sale (Select Realty Professionals) about 10 years ago

Mike,

It does seem totally backwards but it is true. Good of you to warn folks!

Posted by Irene Kennedy Realtor® in Northwestern NJ (Weichert) about 10 years ago

Mike, thanks for your enlightening post...it's good info to pass along to everyone, no matter how much it really doesn't make sense, so I'm re-blogging this. I guess anyone who needs credit just needs to play the game, even with its silly rules. :)

Leilani

Posted by Bob & Leilani Souza, Greater Sacramento Area Homes, Land & Investments (Souza Realty 916.408.5500) about 10 years ago

Good info - some of the ins and outs of credit scores are certainly NOT intuitively obvious.

Posted by Nancy Conner, Olympia/Thurston County WA about 10 years ago

Ouch - very nice pie chart and easy to understand!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) about 10 years ago

Now that is interesting Mike. Yes, the moral of the story is that if you have problems with your credit talk to a lender before you do what you THINK you should be doing.

@Renee. Had to smile at your comment about the pie chart. You're a push over when it comes to charts, aren't you? <another smile>

Posted by Denise Hamlin, Broker/Owner, Helping Happy Clients Make Smart Choices (Cardinal Realty ~ 319-400-0268) about 10 years ago

Great tips, its good to learn about the credit reporting system.  Tell us more

Posted by Greg Freeman (Citiwide Real Estate Services ) about 10 years ago

Thanks for sharing this... credit is more important than so many realize!

Posted by Anonymous about 10 years ago

Sage advice from one of the masters of the mortgage market - thanks for the tips!

Posted by Tony and Suzanne Marriott, Associate Brokers, Haven Express @ Keller Williams Arizona Realty (Serving the Greater Phoenix and Scottsdale Metropolitan Area) about 10 years ago

Mike thanks for sharing this excellent advice and tips. In today's economy we never know what might happen to cause some damage to our credit report. 

Posted by Diane Williams about 10 years ago

A gMerry Christmasood one, Mike, and I like your pie too.

Posted by Teral McDowell (Referral Patners LLC) about 10 years ago

Nice Job Mike but I am disagree with paying any collection more that a month old...  any longer and your score will dip...  but thanks for the info..

Posted by Dave Sullivan, Michigan Realtor with an investor viewpoint (Real Estate One) almost 8 years ago

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