Can I Qualify for a mortgage with poor credit?
Credit reports can contain errors, and those errors can have a big impact on your ability to qualify for a mortgage. Credit industry experts claim the incidence of significant errors is small, but I suspect they're only counting errors creditors were willing to correct. I find many reports have negative items creditors are just too pigheaded to correct. Maybe the hospital and your insurance company are arguing about coverage for a procedure, and the hospital reported the bill to a collection company. Maybe you returned your cable box, but the cable company didn't note it on your account. Maybe your landlord said he was going to let you break your lease, then reneged after you left. For these types of errors, we look to credit repair.
You're entitled to a free copy of your credit report from each of the three credit bureaus once a year. You can request your report online at AnnualCreditReport.com or by mail or phone. I recommend requesting the report from a different credit bureau every four months. This gives you the best chance to catch something early. You're looking for two things: accounts that you didn't open and errors in reporting. The report doesn't include your FICO score, but that's not really important for the task at hand.
If you find an error, the Fair and Accurate Credit Transactions Act (FACTA) provides you with certain rights to help get it corrected. The key part of FACTA is the word "accurate." If you identify inaccurate information, the act requires that creditors remove the account from your credit report.
The bureaus are required to verify any account you dispute, and you can ask for the written documentation they used for verification. From the date a dispute letter hits a bureau's desk, it has 30 days to respond. If the dispute is resolved in your favor, it may take 45 days for the correction to show up on your credit report.
You can dispute accounts yourself, or you can use a credit repair service. If you choose the do-it-yourself route, you can dispute the inaccurate accounts by mail, by phone, or online. Most credit repair experts recommend you dispute by mail so you have a paper trail. You can find a number of resources on the Internet with instructions on how to write and file a dispute.
Disputing accounts is a lot of work and often requires multiple iterations with the credit bureaus. If you choose to use a credit repair service, the cost should be around $1000, and the process may take six to nine months.
One really lousy way to try to improve your credit score is disputing all negative accounts without supporting documentation. It is true that when you dispute an account, the credit bureaus temporarily remove the account from the credit score calculation. However, lenders have gotten wise to this trick. If a credit report shows disputed accounts, lenders typically will subject the loan application to extra scrutiny, including considering how the negative items could affect your ability or willingness to pay your mortgage. In some cases, you cannot qualify unless you rescind the dispute from the account.