Credit reports are detailed records of how an individual has managed their credit over time. These reports contain information including what accounts the individual has opened, the payment history on those accounts, and their credit score.
A lender will use an individual’s credit report and the score that results from the data on that report to determine whether or not to grant the individual credit. If the individual is given credit, their credit report will also help the lender decide what terms to offer.
What is a Credit Score?
A credit score is a number that is calculated by companies or lenders who use their own credit scoring systems for that purpose. Credit scores may fall between 300 and 850.
An individual’s credit score is also calculated by the three credit reporting agencies that create credit reports. There are 3 major credit reporting agencies, including:
- TransUnion; and
One individual may have multiple different credit scores, depending upon which company or lending institution calculates the score. This is because each company may use a different formula for the calculation of the credit score.
A higher credit score is more positive. It means that the individual is more creditworthy, or more likely to pay a loan back on time as promised in a loan agreement.
If an individual is creditworthy, they are more likely to be permitted to borrow money. This is because lenders will believe that if they lend money to the individual, they will be paid back.
The FICO credit rating system is the system that is most commonly used in the United States. This system develops an individual’s credit score based on the information that is contained in their credit reports.
This will affect several financial aspects, including:
- How much the individual is allowed to borrow;
- How many months they will have to repay the loan; and
- The interest rate that will be charged.
In general, many lenders believe that a score above 670 indicates good creditworthiness. Usually, the higher an individual’s score, the lower the risk they pose of defaulting on a loan.
Because of this, creditors are more likely to lend money to the individual.
For example, if an individual is attempting to obtain a home mortgage loan, their lender will use the Freddie Mac and Fannie Mae credit scoring systems. Under these systems, a score lower than 620 is considered to be poor and a score above 640 is good.
If, however, an individual is applying for their loan through the Federal Housing Administration, which helps individuals who have poor credit, a FICO score of 580 may be satisfactory. All credit systems have the same basic idea, that is, an individual who pays their bills on time in the amount owed deserves a better credit score.
What is a Bad Credit Score?
As discussed above, an individual’s credit score is very important. A credit score is a determining factor in whether an individual can get a car loan or even a cell phone line.
If an individual has a bad credit score, it is not the end of the world. However, it may take time and hard work to improve.
How Can I Improve My Credit Score?
If an individual has a lower credit score, they may wish to improve the number. There are several ways an individual may improve their credit score, including, but not limited to:
- Paying their bills on time;
- Updating their old accounts;
- Not maxing out their credit lines;
- Limiting the number of times they apply for credit;
- Maintaining their accounts for a long period of time;
- Staying away from finance companies;
- Contacting creditors;
- Seeing a credit counselor;
- Keeping balances low on their credit cards;
- Requesting and checking their credit report at least annually; and
- Managing their credit cards responsibly.
In many situations, it is much easier said than done avoiding maxing out credit lines and managing credit cards responsible. There are numerous occasions where individuals may face unforeseen circumstances and may turn to their credit card to pay unexpected expenses.
There is absolutely nothing wrong with seeking help if an individual becomes overwhelmed by their debt and wants to improve their credit score. If an individual is denied credit, housing, insurance, or employment due to their credit report, the individual must be provided with the name, address, and telephone number of the credit reporting agency (CRA) that provided the report.
Under the Fair Credit Reporting Act (FCRA), an individual has the right to request a free report within 60 days if a company denies them credit based on the report. There are companies that promise to repair an individual’s credit for a price.
However, there is no way to remove negative information from an individual’s credit score if that information is accurate. If there is a mistake or incorrect information, they may be corrected.
How Do I Prevent Bad Credit?
In general, many of the companies that lend money to consumers believe that a score above 670 indicates good creditworthiness. As noted above, the higher an individual’s score is, the lower their risk and the better chance that a creditor will lend to them.
In order to prevent a bad credit score, an individual should avoid taking on more debt than they are able to manage with their income. The individual should then be able to pay off those debts on time.
If an individual pays their debts no more than 30 days late, that is ideal. It is also helpful to avoid opening and closing lines of credit frequently. If an individual has a low credit score, one thing they should do is add positive information to their report by obtaining credit, but no more than they can handle financially, and make their payments on time.
What are Bad Credit Mortgage Lenders?
A bad credit mortgage lender is a company that specializes in approving loans for individuals with bad or less than perfect credit. In some cases, these lenders are referred to as hard money lenders because they accept borrowers with any credit score.
One of the drawbacks of bad mortgage lenders is that they often require large down payments to compensate for the low credit score. Another drawback of these lenders is that the loans often have high interest rates.
What are Some Common Disputes with Bad Credit Mortgage Lenders?
There are disputes that may arise between borrowers and bad credit mortgage lenders, including fraud and missed payments. In some situations, the loan terms may be considered fraud schemes or bad credit scams.
A missed mortgage payment may result in a defaulted mortgage loan or a foreclosure. In many cases, borrowers will sue their mortgage lenders because the lender will allege that the borrower missed loan payments when, in fact, they did not.
What are Bad Credit Mortgage Lender Lawsuits?
Lenders will almost always approve a mortgage for an individual with ideal credit. An individual with less than perfect or bad credit may still want to purchase a home, but they may not have the option of using a traditional mortgage lender.
Many individuals will try to improve their credit score or will apply for a loan with a bad credit mortgage lender.
What is Mortgage Loan Fraud?
Mortgage loan fraud occurs when the lender participates in an illegal action to deceive a borrower into entering into a loan. In these cases, the mortgage loan is solely for the profit of the lender and not to assist the buyer with purchasing a home.
Should I Contact an Attorney about My Bad Credit Mortgage Lender Dispute?
Mortgage and bad credit disputes may be very complex. For help with resolving issues with bad credit mortgage lenders, it may be helpful to consult with a mortgage attorney.
Your attorney will explain your legal options and can file a lawsuit on your behalf as well as represent you in court.