Using your Mortgage to help your credit.

[Gary Craig]

I could have put this in the success story’s portion of this forum, but the topic pertains to mortgages. I used my mortgage to increase my credit score, plus I have had several P/M asking about installment debt how it can raise your credit. I have used this method to turn my life around. My credit score was 511 now it’s 785. If I can do it, anyone can. The secret is sending in more than the required amount.

First - there are four parts of an installment loan: Term / Principle / Interest Rate / Payment

Whenever you change one it affects the other three. Example: by sending in one extra payment a year on a 30yr mortgage. (1/12th added to your normal payment). This lowers the net effective interest 2%, and cuts 7+ years of the loan. Because you are sending more than the agreed upon payment. Gets reported to the credit bureaus, they see this as a more responsible person and your credit is increased.

Before 2001 - I was self employed having a successful business with 48 employees, making good money, and had a decent credit score. After 9/11 my life went down the toilet. Also was a volunteer fire fighter who was part of the emergency relief of the World Trade Center disaster.

Took advantage of a program offered by Washington Mutual for 9/11 emergency relief workers (who held my 1st mortgage), I paid $600, skipped six months and added to the end of my loan. The left hand knew I was doing this, but the right hand reported to the credit bureaus. My credit took a nosedive, when it was stated six months of not paying my mortgage.

I sold my business having $80k in credit card debt and a 500 credit score, not too many people would talk to me. I thought about filling for bankruptcy – I am glad I didn’t. I found a hard money lender that consolidated all my debts into one payment. This was a 2nd mortgage, and I paid major points to get this done. I had a one year prepay penalty, for 12 months I struggled to make on time payments.

It took nine months of calling Washington Mutual every other day till I received a letter stating I was not responsible for the late payments. Then it took another 2wks disputing with Transunion to get my credit repaired.

The one anniversary - I refinanced my 1st mortgage at a lower interest rate, going into a 20yr term through Wells Fargo. Saved $1500, consolidating everything into one payment. Before refinancing had 24yrs remaining. I am double paying my new mortgage, with the expected payoff in about 9yrs. In the last 5yrs, I have cut my 15 years off my mortgage!

In 2005, I treated myself to a brand new fishing boat (my advar). Took out a 15yr loan, double paying that as well. Expect to pay that off in 7yrs!

In closing - refinancing my mortgage changed my life in many ways, not only getting me back on track with my credit, but I also changing careers. As a Loan Consultant, everyday I speak to people who are now were I once was. It’s a good feeling helping someone get back on track.....

[Ahntara]

This is great information and very valuable not only for re-building credit, but also for building wealth through home ownership. You should be aware though, that while manipulating installment payments to increase scores works, manipulating REVOLVING debt payments works even better. Revolving debt proportions (in relation to the 'highest credit' reported) factors as (up to) 30% of the total score. We don't have an exact figure on installment debt, but we do know that it has an impact. Your story proves just how much of an impact.

It would be a mistake to focus only on installment debt and let CC's ride at high proportions. The best strategy we have from empirical evidence and the limited data from FICO is to have between 2 and 4 revolving accounts, use and pay them ON-TIME monthly and keep the balances AT LEAST 1% and no more than 9% of the highest credit reported. Combined with the information you provide, this emphasizes the value behind properly managing all debt.

It's also important to restrict access to your CR by limiting inquiries. While this section of the scoring model accounts for only 10%. That ten percent can make a huge difference when trying to qualify for certain programs and receive lower interest rates on a mortgage loan.

[amortgageman]

Daggone, I must have it all wrong. I did not prepay my mortgage, but I did take those extra payments and invested in Accredited Home Lending last week at $7.00 per share, with a stop loss at $5.00 and an automatic sell at $12.00. It sold at $12.00, and now I have enough to pay off my house. Come to think of it, I think I will just leave my money with the broker, and invest some more in the future. The money will still be there if I need it to make my house payments.

[2ndTimeAround]

Wow - knocking off 15 years of your mortgage, plus repairing your credit score.....Good Job!!!!

[pjfan]

Good for you Congrats! You hung in there and did not give up!

I could have put this in the success story’s portion of this forum, but the topic pertains to mortgages. I used my mortgage to increase my credit score, plus I have had several P/M asking about installment debt how it can raise your credit. I have used this method to turn my life around. My credit score was 511 now it’s 785. If I can do it, anyone can. The secret is sending in more than the required amount.

First - there are four parts of an installment loan: Term / Principle / Interest Rate / Payment

Whenever you change one it affects the other three. Example: by sending in one extra payment a year on a 30yr mortgage. (1/12th added to your normal payment). This lowers the net effective interest 2%, and cuts 7+ years of the loan. Because you are sending more than the agreed upon payment. Gets reported to the credit bureaus, they see this as a more responsible person and your credit is increased.

Before 2001 - I was self employed having a successful business with 48 employees, making good money, and had a decent credit score. After 9/11 my life went down the toilet. Also was a volunteer fire fighter who was part of the emergency relief of the World Trade Center disaster.

Took advantage of a program offered by Washington Mutual for 9/11 emergency relief workers (who held my 1st mortgage), I paid $600, skipped six months and added to the end of my loan. The left hand knew I was doing this, but the right hand reported to the credit bureaus. My credit took a nosedive, when it was stated six months of not paying my mortgage.

I sold my business having $80k in credit card debt and a 500 credit score, not too many people would talk to me. I thought about filling for bankruptcy – I am glad I didn’t. I found a hard money lender that consolidated all my debts into one payment. This was a 2nd mortgage, and I paid major points to get this done. I had a one year prepay penalty, for 12 months I struggled to make on time payments.

It took nine months of calling Washington Mutual every other day till I received a letter stating I was not responsible for the late payments. Then it took another 2wks disputing with Transunion to get my credit repaired.

The one anniversary - I refinanced my 1st mortgage at a lower interest rate, going into a 20yr term through Wells Fargo. Saved $1500, consolidating everything into one payment. Before refinancing had 24yrs remaining. I am double paying my new mortgage, with the expected payoff in about 9yrs. In the last 5yrs, I have cut my 15 years off my mortgage!

In 2005, I treated myself to a brand new fishing boat (my advar). Took out a 15yr loan, double paying that as well. Expect to pay that off in 7yrs!

In closing - refinancing my mortgage changed my life in many ways, not only getting me back on track with my credit, but I also changing careers. As a Loan Consultant, everyday I speak to people who are now were I once was. It’s a good feeling helping someone get back on track.....