Using a credit repair company in California might help you qualify for a mortgage loan. But not all credit repair companies are the same. So consumers have to do some careful research and vetting before choosing a service.
Here’s an overview of what credit repair companies do, and how their services might help you qualify for a home loan in California.
What Do Credit Repair Companies Do?
The exact services provided by a credit repair company can vary from one to the next. But for the most part, they all do the same basic thing. They help their clients remove or modify certain types of negative information from their credit reports. These companies tend to focus on removing inaccurate or outdated information, in particular.
According to the California Department of Consumer Affairs, these types of companies: “research records for errors in billing or credit reporting to clear or delete incorrect information and repair credit in that manner…”
The end goal is to boost the person’s credit score by eliminating negative entries that might be dragging it down.
It’s important to point out that consumers can correct their own credit reports as well, if they know what to look for and how to dispute it. All three of the reporting bureaus (TransUnion, Equifax and Experian) are required by law to review all disputed entries in a timely manner.
But many people find that they don’t have the time or knowledge needed to dig through a highly detailed credit report, in search of erroneous or outdated entries. So they often turn to credit repair companies for help and expertise.
How Credit Scores Affect Mortgage Loans
If a California credit repair company is successful in its efforts to “clean up” a client’s reports, the client might see an increase in his or her credit score. That’s because these three-digit scores are largely based on the information found within a person’s credit report.
The reports themselves are merely a record of previous financial transactions, including credit card usage, loans, etc. This information gets put through a computerized scoring model to produce a credit score. So, having negative items on your credit report could result in a lower score.
People with low scores tend to have a harder time qualifying for financing — including mortgage loans. Whether you’re applying for a government-backed loan like FHA and VA, or a “regular” conventional mortgage product, your credit score will come into the picture.
Having a higher score can benefit you in a couple of ways:
- It could help you qualify for a mortgage loan in the first place.
- It could also help you secure a lower interest rate on the loan, saving you money.
Tips for Choosing the Right Company
As mentioned earlier, not all credit repair companies in California are the same. Also, the state of California has specific rules and guidelines for these companies. Here are some tips for choosing a credit repair company, offered by an industry insider.
Bonded and registered: In accordance with the Credit Services Organizations Act, the state of California requires these companies to be registered with the Department of Justice. They must also file for a $100,000 bond. But some credit repair companies skirt around these requirements, thus operating illegally. Obviously, that’s the kind of company you want to avoid. So when you’re considering a particular credit repair company in California, ask for their DOJ registration and bond.
No upfront fees: If a credit repair company asks for upfront fees, consider that a red flag. Federal laws state that no fees can be charged unless the company has actually done work on the client’s behalf. Yet some companies will still try to charge upfront “setup” fees, while failing to deliver results. A reputable credit repair company in California will only change a fee after results have been delivered.