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No longer approved for mortgage loan because of sudden drop in credit score!?

I was approved over a month ago for an FHA mortgage with a middle score of 628.  We found a house, made an offer, and it was accepted, so we got all the paperwork going and everything was looking great.  Until the bank just suddenly stopped communicating with me, and seemed to be taking FOREVER with their "paperwork".  After a couple weeks, I called to ask what the heck was going on, and was informed that my credit was repulled because the bank made an error on my birthdate, and my scores had "plummeted".  My score went all the way down to 593.  I had no idea how, but my LO told me it was because of my handy dandy carecredit card I had opened up about a month prior.  The card had a $1,000 limit and I opened it to pay for wisdom tooth removal.  I have been making the minimum payments on it, and hadn't missed a payment, but my LO advised me to go home and try to get it down to 50%.  So, I ran home and made a $500 payment on it.  (The current balance is now like $430, and I will have no interest as long as I get that paid off by March of next year.)  My LO felt very confident that making that payment would improve my credit score, and get me back on track to getting my house, so she did a "rapid rescore" and expedited proof of my payment to the bureau.  Well, I finally heard back from her yesterday and my rescore is only 604!  What gives!!!?  That card is the only change I've made to my credit, and opening it lowered my score by like 35 points, but making such a huge payment only raised it like 10???  I don't get it.  I am very stressed and confused, and losing hope.  I am going to the bank to meet with the LO Monday to find out what the heck is going on.  Does anyone have some insight or advice?  I am lost.

Thanks.
-E
  • December 01 2012 - US
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Answers (16)

Here's an old myth that consumers AND Loan Officers need to remember.  The 50% utilization on a credit card to help your scores is NOT going to give a large increase to your credit scores.

FICO (Fair Isaac and Co.) has specific criteria when it comes to balances and limit utilization rates on revolving accounts (credit cards).  There are 3 thresholds that you need to be aware of.  These are 30%, 10%, and 0%.  If you can only afford to pay down your cards due to large limits, at least get them down to 30% of the limit to increase your scores.  Next is 10%, but the absolute best position is to have them ALL paid off completely.

The reason I say "ALL" paid off is due to the aggregate utilization calculation.  FICO takes a look at the sum of all balances and limits, this is the aggregate utilization rate.  It also takes a look at the linear utilization (each individual account).  

So the best advice for your credit scores is to pay down or off all of your credit card accounts.  Then you "rapid rescore" those account balances, or you can wait up to 30 days for the new balances to post from your creditor to the bureaus.  Then re-pull credit.

If you need anymore advice on what to do to help your credit scores, you can reach me through my profile here on Zillow.

Jason Hall
Credit Expert

  • January 03 2013
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FHA 640+
Rewards good credit rating home buyers with better interest rates
===========================
640 is good credit? (no offense to the OP)

  • December 19 2012
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Profile picture for Go Huskers
"FHA Zero FICO No Credit
Only 3.5% down Payment
No credit needed for our FHA Zero FICO Program, NO Credit Program
with or Without alternative trade lines"
----
This is a TILA violation as it's considered a "misleading term." No credit score and no credit are 2 different things. Stating such without clearly spelling out the terms is a violation. It's a violation because your post is clearly an advertisement for your services. (AKA SPAM)

"No credit needed for our FHA Zero FICO Program, NO Credit Program
with or Without alternative trade lines"
  • December 18 2012
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move your loan to a lender that can close with those FICO scores. 

FHA 580+
goes as low as 580 credit score, only 3.5% Down payment, business as usual, flexibility like never…
FHA 640+
Rewards good credit rating home buyers with better interest rates
FHA 500+
FICO 500 – 579 10% Down Payment, 90% Finance
FHA Zero FICO No Credit
Only 3.5% down Payment
No credit needed for our FHA Zero FICO Program, NO Credit Program
with or Without alternative trade lines
  • December 18 2012
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I continue to be amazed that Agents would attempt to answer a question on this Mortgage Advice forum when it obviously requires lender expertise.  Consumers should expect to rely on receiving knowledgeable advice and giving erroneous input to "cheat the scores......" and dispute accounts on a credit report could be very damaging.  We all know not to give legal advice and same could apply to other advice where expertise is lacking.
There are Home Buying/Selling/Renting Advice forums on this blog that are obviously Agent specific, but if anyone chooses to advise on this forum (or any forum) be careful that you have the facts. Better not to respond then to give bad advice. IMHO
  • December 13 2012
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Profile picture for user0204230
Hey everyone, thanks for all the answers. I now have that carecredit card paid down to $100, so I'm praying that it does something. My LO's advice was to just let my credit "rest" for a billing cycle. In other words, she wants to wait for these carecredit guys to report to the bureau, so she said she would repull on December 28th, so there goes spending Christmas in our new home. I have been stressed to the max.
  • December 13 2012
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Did you ever get this figured out?  Ultimately it would be a good idea to talk with someone that is familiar with helping get credit scores up the right way, there are many tricks but they can backfire too.  A good legitimate plan is the way to go, that may take 3 days, may take 3 months or longer, but needs a thorough analysis of the entire credit report.  If you have specific questions you are welcome to private message me through my profile, I would be glad to help.

Good Luck.
  • December 12 2012
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Profile picture for Bert Pope
Try having a person that has exemplary credit add a credit card to their account in your name. That has in the past given a boost to a person with poor credit. This piggy backs on their credit and boosts your credit. 
  • December 12 2012
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Quote from the yahoo at Yahoo, lol:

"They know they have a window during which it will be removed from their credit reports, and their scores will go up right away. It's dishonest, but clever."

That is where his "theory" falls apart. In addition to everything Huskers stated, the tradeline does not get " removed from their credit report". It is reported like all other accounts but says Account in Dispute. This does not mean it doesn't exist, while it is temporarily held out of the scoring process it is still counted in the debt ratio, the underwriter will force the removal of the dispute and a new report pulled, or loan denied. As far as doing this to buy a car, I have no idea if they read credit reports or just go off of scores, but it doesn't work for mortgages.  
  • December 12 2012
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Profile picture for Go Huskers
You missed the problem. Your advice is ridiculous because it does not work.

"The strategy: Have an outstanding debt that you know you owe but can't pay? Send a letter to the credit reporting agency to dispute it."
Does it work?"

NO!

Why? For the reasons I just showed you. Underwriting guidelines won't just ignore the fact that the tradelines are in dispute. You don't really think lenders are that stupid do you? If accounts are in dispute then further investigation will be done to determine the accuracy of the credit score. In most cases, the lender will require that the account no longer be in dispute before issuing an approval. 

It does not work and it's terrible advice. It's terrible advice because telling someone to dispute the account will result in further complications to the file. 

Quoting some yahoo on Yahoo that does not know how mortgage lenders handle disputed accounts is not helping anyone. Refer to the actual guidelines posted below.
  • December 12 2012
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I am not advising anything, in fact I think the statement you left out 

 That said, if the ding is on there maybe you should consider if it is really something you actually can afford?

Is advising not to take the added credit on.  

Maybe it came across mis-stated, because I wrote that while on hold, the words legitimate should have been added (I apologize for that).  I also didnt offer them to do anything illegal, just to dispute anything that isn't valid.

http://finance.yahoo.com/news/6-weird-credit-score-strategies-130000541.html

4. Dispute a legitimate debt

The strategy: Have an outstanding debt that you know you owe but can't pay? Send a letter to the credit reporting agency to dispute it.

Does it work? Yes, temporarily. "The debt will come off the credit report for 30 to 60 days while the creditor validates its accuracy," Barrick says. "So people who decide they want to get a car may dispute a debt right beforehand. They know they have a window during which it will be removed from their credit reports, and their scores will go up right away. It's dishonest, but clever."
By the time the disputed debt reappears, the car loan or other new debt will already be in place. A related strategy is to ask a friend or relative for a short-term loan so you can pay a credit card down temporarily.

Possible drawbacks: There are no real drawbacks to disputing a legitimate debt, other than lost time and wasting your card issuer's time and energy spent researching it. But if you do it with the goal of taking out a new loan that creditors believe you can't handle -- consider the possibility that they may be right. 

  • December 12 2012
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Profile picture for Go Huskers
"a way to cheat the scores for a period of 1-3 months is a written dispute to the creditors, the items in question have to be taken off while they verify the dispute, then they may come back but in that time your score would go up and the purchase could be made then."
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This is probably the worst advice I've seen in a while and it's so very wrong!

1) Advising anyone to cheat the system warrants license suspension IMHO!

2) What you suggest is incorrect anyway.

Fannie Mae Selling Guide page 464
"Disputed Credit Report Tradelines
When DU issues a message stating that DU identified a disputed tradeline and that tradeline was not included in the credit risk assessment, the lender must confirm the accuracy of disputed tradelines reported on the borrower's credit report. If it is determined that the disputed tradeline information is accurate, lenders must ensure the disputed tradelines are considered in the credit risk assessment by either obtaining a new credit report with the tradeline no longer reported as disputed and resubmitting the loan casefile to DU, or manually underwriting the loan."

FHA ML 2012-3 and ML 2012-10
"If the credit report reveals that the borrower is 
disputing any credit accounts or public records, 
the mortgage application must be referred to a 
DE underwriter for review."
  • December 12 2012
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a way to cheat the scores for a period of 1-3 months is a written dispute to the creditors, the items in question have to be taken off while they verify the dispute, then they may come back but in that time your score would go up and the purchase could be made then.  That said, if the ding is on there maybe you should consider if it is really something you actually can afford?
  • December 12 2012
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Do you have other REVOLVING debts on your credit report???

Scores take in to consideration ALL revolving balances vs. total limits.

If you do have other revolving accounts, paying those balances down as well should increase your scores where you need them to be. 

Ask your lender if they have an analysis tool in additon to rapid rescore options.
  • December 12 2012
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Not only is your balance over 40% on the credit card you mention but the fact that the card is NEW is an issue. You may need at least a 6 month history of timely payments before you see your score improve significantly.
  • December 03 2012
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Loan officer should have done a "What If" procedure to determine how far you would have to pay down the credit card to raise mid score to 628. Obviously $500 reduction was not enough as it is still 50% utilization. It is likely you will need to pay it down to $200- $300 balance or maybe zero, but have loan officer find out ahead of time before you pay any more down. Frankly paying it down to zero may not raise mid score to 628 and though the "What If" procedure is not a guarantee, it is far better than not utilizing it.  Good luck.
  • December 01 2012
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