Distressed Credit

HELPFUL INFORMATION ABOUT DISTRESSED CREDIT

and

NO INCOME VERIFICATION LOANS

As many consumers are aware, the availability of loans for persons with "distressed credit" credit or with "no income" verification (often called "state income" ) has been greatly restricted over the past two years.  This is because of the massive losses experienced by most large lenders for these types of loans.

At this time there are really no outlets for persons with major credit issues or with no way to verify their income.  Generally speaking, if your middle credit score (there are three national providers of credit scores) is below 600 it will be very dificult to find a loan.  The best approach to take if you have a low credit score is to talk to an expert or go on line to find a way to get your credit score increased.  It is often times possible to raise your credit score 20 to 30 points over a short period of time by taking the proper steps.

Here is some information that might be helpful.

What determines if someone has distressed credit and just how low can it be?

A customer with Distressed Credit is someone generally who has a middle credit score (see below for more details on this) that is low enough, usually below the 580-600 range.  As stated above, at this time it is very difficuklt, in fact almost impossible,  to obtain a purchase or refinance loan.

There are three companies that generate credit scores on a credit report (for more details , see below). Borrowers are usually rated by the “middle” of the three credit scores.

they are buying or refinancing  a single wide mobile home. Double wide mobile homes are in a better category. 

How do credit scores work?

Most lending these days is underwritten using credit scores for consumers that are based on their credit history.  These scores can range from 450 to just over 800.  A score that is under 620 is one that begins to be a problem in terms of getting the best interest rates.
Many people, however, with scores in the 620 area can still get the lowest rates if they have good income or quite a bit of equity (value less mortgage debt) in their home.

What factors make up a credit score?

Your credit score is generated by three private companies who obtain data from lenders and registry of deeds, and collection agencies around the country.  These companies (Experian, Trans Union, and Equifax) use different scoring systems and data, but they usually come out quite close together.  Each consumers credit report usually has three credit scores, one from each company.  Decisions by lenders are usually made based on the middle score of the three scores.

The following factors weigh on the credit score:

1. Past Payment Performance or History: 35% of score’s weight.
   • Recent late payments hurt the most.  Liens, judgments, and collections also hurt.
2. Credit Utilization: 30% of credit score’s weight.
   • A low balance (i.e. below 30% of maximum) on each card helps a lot. You are better off having low balances on several cards than a high balance on one card.
3. Credit History: 15% of credit score’s weight.
   • The longer you have used a credit card, the better. Constantly “rolling over” credit to new accounts is harmful. AVOID “CREDIT SURFING”
4. Type of credit in use: 10% of credit score’s weight
   • Mortgage company or bank secured debt is better for your than finance company debt.
5. Credit Inquiries by lenders: 10% of credit score’s weight
   • Multiple applications for credit can be harmful to the score if done in a short period of time.  An exception is that any mortgage or auto debt inquiry within 30 days of the current inquiry will not impact your score. This allows you to shop around for these loans with no negative impact.

Can I get a Credit Report for FREE?

Under state and federal law you have a right to a free credit report every 12 months.
This report will not give you a FICO score for free but will give you a good idea of  where you stand and what errors there may be on your report.

For more information call the Maine Office of Consumer Credit Regulation
—207-582-7689 or go to www.state.me.us/pfr/ccp/ccp_creditrpt.htm