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

By
Mortgage and Lending with SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171)

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.

 

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Re-Bloggged 8 times:

Re-Blogged By Re-Blogged At
  1. Emmary Simpson Tierra Antigua Realty - Tucson AZ 11/23/2010 07:36 PM
  2. Margaret Woda 11/24/2010 08:54 AM
  3. Christine R. Sutherland 11/24/2010 09:12 AM
  4. Julia Odom 11/24/2010 11:30 AM
  5. Bob & Leilani Souza 11/24/2010 03:48 PM
  6. Erica Ramus 11/24/2010 04:22 PM
  7. Curt Baumgarth 11/25/2010 10:44 PM
  8. Marilyn Boudreaux 11/30/2010 11:09 PM
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Comments 31 New Comment

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Ambassador
895,064
Missy Caulk
Realtor - Ann Arbor Real Estate
Missy Caulk TEAM

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!

November 24, 2010 09:02 AM
Rainmaker
891,496
Michael Setunsky
Your Commercial Real Estate Link to Northern VA
Michael's Commercial LLC

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

November 24, 2010 09:30 AM
Rainer
41,620
James McGary
Agents Set Free, Inc

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

November 24, 2010 09:38 AM
Rainmaker
124,582
Kamal Salim
A Superior Level of Service !
Realty Associates

Thank you for sharing, great post

November 24, 2010 09:43 AM
Ambassador
665,362
Ann Allen Hoover
CDPE SRES ASP e-PRO Realtor - Homes for Sale - AL
RE/MAX Advantage South

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

November 24, 2010 09:52 AM
Ambassador
716,652
Mike Jones
Mike Jones NMLS 223495
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171)

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

November 24, 2010 10:13 AM
Rainmaker
1,198,837
Richie Alan Naggar Author PEARLS SERIES of books
on LIFE and LOVE plus Real Estate too!
People first then business! Ran Right Realty Riverside, Ca

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....

November 24, 2010 10:57 AM
Rainer
175,528
Julia Odom
Chattanooga Homes for Sale
Select Realty Professionals

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.

November 24, 2010 11:28 AM
Anonymous #21
Anonymous
Anonymous

Mike,

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

November 24, 2010 02:09 PM
Rainmaker
941,672
Bob & Leilani Souza
Placer County, CA: Foreclosures, Auctions, Rentals
Souza Realty - Roseville, Rocklin, Lincoln, Loomis, Granite Bay, Penryn, Newcastle, Auburn, Meadow Vista (California)

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

November 24, 2010 03:44 PM
Ambassador
1,227,160
Erica Ramus
MRE, Schuylkill County PA Real Estate
Erica Ramus - Ramus Realty Group - Pottsville, PA

Mike -- someone told me that recently and it sounded too unbelieveable to be true. Thanks for the info. I am reblogging.

November 24, 2010 04:20 PM
Rainmaker
597,666
Nancy Conner
Olympia/Thurston County WA
Managing Broker - City Realty Inc

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

November 24, 2010 04:22 PM
Ambassador
1,470,951
Renée Burrows
Las Vegas Real Estate Broker - www.urLVhome.com
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate

Ouch - very nice pie chart and easy to understand!

November 24, 2010 08:08 PM
Rainmaker
407,694
Denise Hamlin
Real Estate & Relocation Services 319-400-0268
Cardinal Realty - Locally Owned Real Estate Company

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>

November 24, 2010 09:46 PM
Rainer
64,090
Greg Freeman
The Michael Group

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

November 25, 2010 11:27 PM
Anonymous #28
Anonymous
Anonymous

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

November 25, 2010 11:45 PM
Rainmaker
905,806
Tony Marriott
Associate Broker, REALTOR
Haven Express @ Keller Williams Arizona Realty

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

November 26, 2010 11:17 AM
Rainer
214,957
Diane Williams

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. 

November 27, 2010 06:18 AM
Rainmaker
468,851
Teral McDowell
Plano Real Estate Solutions
Keller Williams Central

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

November 28, 2010 06:36 PM
Rainer
166,444
Dave Sullivan
The Real Story on Your Credit Score - TheCreditGuy
www.TheCreditGuy.TV

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..

January 06, 2013 05:56 PM
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Mike Jones

Mike Jones NMLS 223495
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