How To Get Negative Information Removed From Your Credit Report

Yesterday, a client called and asked about refinancing, so the first thing I did was run his credit and his wife's credit, because they're co-borrowers. Within seconds, I see the wife has a 730 FICO score, but the husband is lower, at 719. They're both still high enough to qualify for the best rates, but just barely.

"Let's see what's dragging you down," I tell him, and then, as I scan the readout, "Uh oh, you have 10 late payments. On an auto lease. That you paid off in 2006."

Of course, he flips out. He says he has no idea why Bank One reported 10 lates. So I say, "We have to get them off your credit report." Then I tell him how:

The first thing I tell the client to do is to dig out proof that he paid that auto lease bill during every single month that the payment was reported late. Next, I tell him to make copies of the canceled checks—or in his case, all the old monthly checking account statements that list the online payments his bank sent—and to send copies to the creditor along with a letter requesting removal of the delinquents.

I tell him to send a letter with the standard wording I tell all my clients to use:

Dear So-and-So, Recently when my credit report was run, I found you reported this account no. xxxx as delinquent. As you can see, by my attached records, this account has never been late. All payments have been made on time. Please stop reporting this account as delinquent and send me evidence you have done so. Please feel free to contact me directly with any questions. Thank you. Sincerely.

You want to get a letter from them saying they're taking it off. That's the holy grail. The phrase "send me evidence" is key.

By law, the creditor has to respond within two weeks. If they say, "No, it was late," then at least you have something to argue about. But they might just go ahead and correct it, because the payments were made, and you have so much evidence that you made these payments that they'll have a tough time arguing about whether the payments were late.

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LoanShark Confesses: I Can't Pull A Credit Score From A Hat

Ever since most major lenders tightened credit standards, my job got harder. Borrowers used to need to have a 680 credit score to qualify them for the best rates. Now it's 700. Anything lower and you can't get a non-conforming loan. Clients ask if one 30-day late payment will be detrimental enough to disqualify them from getting the best rate. Or does it take one 60-day late? Or three 30-day lates along with a high debt-to-credit ratio?

I wish I knew. A FICO score, which can range from the 300s to 900 (although I've never seen one that high) is based on a complicated proprietary formula nobody has cracked. Believe me, I've tried. I've seen people with a lot of lates and they have a score of 720. I've seen somebody who had one late and it brought him down to 600.

I tell clients to get a copy of their credit reports ASAP (get all three because we get all three, every time, and we will use the middle score to qualify you). I tell people if they see anything at all negative on the report, be proactive. Contact the creditor to ask to have the negative information removed (in my experience, it's a lot easier to get a late car payment removed than a late mortgage payment). It's better to write a letter than to phone, and attach copies of your bank statements showing the payment was made.

It's worth the trouble. On a $300,000 loan, here's what you could save:

FICO® score	APR	Monthly payment *
760-850	5.600%	$1,722
700-759	5.822%	$1,764
660-699	6.106%	$1,819
620-659	6.916%	$1,979
580-619	9.220%	$2,461
500-579	10.242%	$2,686

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Rates that sound too good to be true probably are

Some people are hearing about rates on 5/1 and 7/1 ARMS that are much lower than those offered by the main players in the mortgage market.

The main players—Chase, Wells Fargo, Citibank, and BofA—are currently offering rates on these loans in the range of 6% to 7% depending on whether or not you pay any points. Some secondary mortgage players (Union Bank and IngDirect) are offering rates as low as 5.5%. So how can they make money offering rates that are essentially out of the market?

Easy: They make their money by requiring up-front points and having prepayment penalties. They're betting the rates will drop to even lower interest levels than their current offer. The catch? Their borrowers will not be able to refinance to take advantage of lower rates because of stiff prepayment penalties.

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