Credit Score Took a HUGE Dive

17 Replies

HAPPY FRIDAY BP!!! I've been a homeowner for 6+ years and had finally decided to get into REI. I'm still educating myself (been doing so for the past 2 years), but decided to a HELoC to fund the down payment and would mortgage the rest.

I've been working on my credit for some time now and got my score up to 733.  In keeping up with my score on Credit Karma, yesterday I had the shock of my life ... my score dropped down to 634 within the past 2 weeks :(  I let a cell phone bill of $98 hit my credit report, which I believe caused the dive (paid it off yesterday).  I also paid off a couple accounts (both collections and a current credit card) that have yet to be updated on my report.  

Question is would a lender / underwriter be more understanding of extending a loan with a good interest rate in reviewing my past credit history?  I've been on time with my mortgage, student loans and other accounts at 100% for a number of years vs. this most recent incident.  I really don't want to postpone being an investor, but I feel like I may have to because of my score.  

If anyone has any great advise on how to boost my score, lender input, REI experience in relation to my issue, etc. , I'm all ears...

Have a great day ... Cassandra :)

I would wait till it is back up, hopefully closer to 800. Hard to say what a individual institution will consider but for th emost part th escore is th emajor deciding factor. All they will find in searching your credit history is bad news.

Depending on the lender, a small collection may not come up on your credit report, and therefore may not affect your score. We had a cell phone bill of $75 that we thought was paid off when we switched from T-Mobile to Verizon. It ended up going to collections and dropped our credit score from 730 down to somewhere in the 650 range. We found out when we were shopping for mortgages last spring that certain lenders don't factor in small collections under a certain dollar amount (which I've since forgotten. We went through QuickenLoans for our FHA loan and they did not take the collection into consideration, meaning we got much more favorable terms.

     In addition, I sent what is called a "goodwill letter" to the collections agency with the payment, essentially asking them to remove the derogatory mark.  That helped immensely with improving my credit score.

Couple thoughts I have is get your phone bill and all other bills on autopay so you don’t have to worry about missing one ever again and to make sure the money is there consider keep a minimum balance in your account never let it dip below say 3 grand so you know money will be there. Consider that your “zero” balance if that makes sense. And lastly I would try to pay off any debt that’s not working for you soon as you can and early if possible. 730 is respectable but you definitely want to flirt with 800 in this game. Good luck!! Hope that gives you an idea or two!

Hi @Cassandra Sifford , the higher the score the better. You will get better terms, more loan options, and better return. 

Two of the most important factors credit score and DTI. Some lenders may understand what happened to you and give you a "pass" (you'll pay for it a little), but most will just look at your what your credit score is. I mentioned DTI because you said you have a mortgage, student loans, and other accounts. Also, that you plan to use a HELOC for the down payment. Make sure that your DTI stays below 40%-50% or you may have a hard time getting approve.

Focus on paying high interest loans and on maximizing your income, that will help your financial position when applying for a loan. 

Good luck!

@Thomas S. @Hans H. @Mike Stadel @David Fernandez   ... Thank you for your input! 

I think I'll have to put it off a little while longer. I love the idea of writing a letter to the collection agency. I'll get working on that today! I just utilized an online DTI ratio and my backend debt is a little higher than what mortgage companies may like.

Again many thanks for your advice as I appreciate it much!

@Cassandra Sifford , I didn’t meant to discourage you. It will be a little harder to get started since you will have to be creative (ask someone to qualify for the loan sacrificing some of your returns, partner with someone, ask for seller financing, loan assumptions, etc.) and we are in a sellers market. 

Some very successful investors don’t start with a perfect personal financial situation. It helps, absolutely, but it is not a requirement. 

Originally posted by @Hans H. :

Depending on the lender, a small collection may not come up on your credit report, and therefore may not affect your score. We had a cell phone bill of $75 that we thought was paid off when we switched from T-Mobile to Verizon. It ended up going to collections and dropped our credit score from 730 down to somewhere in the 650 range. We found out when we were shopping for mortgages last spring that certain lenders don't factor in small collections under a certain dollar amount (which I've since forgotten. We went through QuickenLoans for our FHA loan and they did not take the collection into consideration, meaning we got much more favorable terms.

     In addition, I sent what is called a "goodwill letter" to the collections agency with the payment, essentially asking them to remove the derogatory mark.  That helped immensely with improving my credit score.

 I just wanted to add a comment to this - while it's definitely true that some collections, if under a certain amount, will not need to be paid off in order to qualify for the loan, the collections are still affecting your credit score.  The collections are not disregarded in determining your credit score.  Not sure if that's what you meant, but if it's on your credit report, it is factored in to the score.

@David Fernandez ... I thank u greatly for ur input. It was more of a realization rather than discouragement.  At this point I'd prefer to take out a loan by myself instead of partnering with someone else. This small set back is a set up for something much greater!

@Stephanie Irto ... With Hans' advisement on the letter, I'm hopeful for the same outcome.  The debt was paid off yesterday and feel that it was a small amount in comparison to many other possibilities. I wrote a letter to the mortgage company and thats how I outbeat other offers for my 1st house! 2nd time's the charm in this instance 😉

One thing you might want to know - the free credit scores reported by Credit Karma and various online banking institutions (as many of the banks and credit cards offer free FICO scores) are in fact higher than what a lending institution uses. If your score is, let's say, 775 in Credit Karma, you can expect your score in the report run by a lender to be 25-35 points lower (or more strict), like 740.  And you need 720 and above to get the best terms.

One quick and easy way to boost you scores is to decrease you debt to usage by increasing the limits on your credit cards. Just call and ask for a limit increase and that reduces the the percentage of debt that you have on that card. You don't come out of pocket at all on this quick and easy method.

If you're looking to make a move in the near future with your credit though, I would ask wash credit card company, before receiving the increase, if they require a hard or soft pull. Obviously a hard pull will place an inquiry on your report which is counter productive if you plan on making a financial move based on credit in the near future. Many company's provide increases without doing a hard pull though, just fyi.

Happy Investing...

You mentioned that you paid off an old collection, please be aware that that may have further hurt your score. 

A charge off is tied to the account of last activity, regardless of whether it's been paid off or not. Does not change how it's counted - only the last activity date counts. So, if you had a charge off 4 years ago, it looks better than if you paid it all off yesterday, because now the 'last activity date' is yesterday and it looks as if this is a new charge off. 

Try at least 700 shows up. Just watch that you pay your bills on time.  A client was rejected for a mortgaage he & his wife combined income is ~$400K. Always pay on time except one credit card bill sent to his older address never got it. Ended up in collection. That took 1+ year to get credit to the level they deserve. Today they own a 1.6M and 2M- homes in Mv, CA and Redmond, WA.

@Ivory Hayes Thank you for the tip!  I'll give my credit card companies a call to inquire.

 @Michaela G.   Thank you for your advisement!  None of my accts have ever been charged off, but the older one I paid off was on my report for 2 years.  It has been updated on Equifax (has a higher credit score), but not on TransUnion (that's the score that dipped down 99 points).  I have been paying my other bills on time for years and have been keeping up on other recent medical bills.  I'm going to pay down / pay off my 2 credit cards in the next 4 months and reevaluate to see what happens.

 @Sam Shueh Thank you!  I'll get back in the 700's with everyone's help :)

@Chris Walsh Thank you for sharing the site!  I watched some videos and they were insightful.  I've paid down some debt and am on my way to getting my score back up.

@Cassandra Sifford If you need to give your credit a quick shot in the arm.  Do some research on "piggy backing".  Its a great way to make a quick improvement before going out to get approved for a loan.

@Alex Bekeza ... I asked my Mom to add me on as an authorized user.  She pays most accounts off monthly, but is having a hard time finding a card that actually reports the authorized user to the bureaus.  She has a few more cards to try so I'm hopeful.  Thanks for the info!

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