From our studies, bad credit caused by late payments has the greatest impact on the credit score within one year of the late payment. Obviously any accounts that are currently past due have the greatest impact. If the account is satisfied, or brought current, the negative effect the history of past due status has on the credit score declines in time.
We discovered that, for the most part, any satisfied, derogatory credit listings over one year old (besides a foreclosure) are overlooked by certain loan programs. The real key lies with the mortgage broker or banker you choose and their access to these programs.
In cases where consumer's seek a home loan or mortgage refinance and their credit report shows bad credit caused by late pays within the year, approval for the home loan or mortgage refinance could be a problem. Although one or two thirty day lates typically do not cause a major impact if there are very many late payments on multiple accounts the effect on the credit score is relatively severe. Again this pertains to accounts past due within one year but are now paid to date and being reported by the creditor to the credit bureau as current or paid.
If accounts are being reported to the credit bureau as past due at the time the consumer applies for a new home loan the application will be denied unless the accounts are paid or brought current. If a consumer applies for mortgage refinance with accounts are being reported to the credit bureau as past due, the accounts will have to either be brought current or paid in full by the consumer or, the new loan will have to be made for a higher dollar amount which will be used to pay the past due accounts in full.
For consumers with a recent credit history of past due accounts we found three options:
- Put-off home purchases until one-year after the last late payment;
- Work with a broker that has access to re-scoring;
- Contact the creditors reporting the late pays and ask them to remove the listing.
