Understand Credit – It’s a MUST!

Prior to 2000, lenders had no real means to assist clients regarding improving their FICO scores other than telling them to pay down/off credit cards with high balances. After 2000, scoring programs were provided to Credit Companies to help assist loan officers with immediately helping their borrower clients improve scores, leading to better rates and higher scores. These automated products have done wonders for my clients. They help pinpoint exactly what to do! I became immersed in these products 20 years ago and I call myself a Credit Expert because I have studied credit for two decades now.
Most lenders today have access to Wayfinder and What-If-Simulator, programs where you can adjust credit balances and see EXACTLY what those adjustments will do to the FICO SCORE. With these tools, you can enlighten your clients immediately on what to pay off, what the FICO SCORE will improve to, and within about 10 days…rescore the client to update the score immediately! No more waiting 30-60 days to update the scores! While these programs do not guarantee 100% results, I have been working with these tools for 20 years and they are extremely accurate. I have helped thousands of clients obtain better rates as a result!
Additionally, 95% of the general public has very little knowledge of how the credit world works, what to do to improve their scores; what to do to keep their scores from dropping (outside of going 30 days late on a payment). Most people just don’t know how to take advantage of improving their scores. Let me share with you just a few myths of credit that a majority of the public still believes:
MYTHS OF CREDIT:
“Paying off my collection account will help my score immediately”. This is a big one! The answer is NO! Of course, you would believe that taking responsibility and paying off a collection would help your score. But believe it or not, doing just that will HURT your score for the immediate short term. So, if you are in the market to purchase a home, you are best to NOT pay off any collection without first consulting your loan officer. You could harm yourself doing the right thing!
“I receive my Consumer Credit Report from FreeCreditReport.com., Credit Karma, or AnnualCreditReport.com. These all show my Mortgage FICO Scores!” NO. Not True! Yes, they all reflect a score, but those scores are Consumer Scores, NOT Mortgage driven FICO SCORES! They are based on different scoring models than, let’s say, a lender pulling your credit OR an auto dealership running your credit. That is why consumers are sometimes shocked when a lender runs their credit, and the scores are much lower than the consumer score they pulled at home…or the credit score that appears on their credit card statement! It is important you know the difference!
“Having too many credit cards will hurt my FICO SCORES”. NO! As long as you have minimal balances, having 100 credit cards will provide you a higher FICO score than having 2 credit cards! That’s right, the more the merrier! Your FICO scores are based on the balances you carry versus the maximum credit limits! If you have 100 cards with a $5,000 credit limit, you have $500,000 available credit. If you owe $10,000 against all that credit, that is 2% in outstanding balances. If you have 2 credit cards, each with a $5,000 limit, or $10,000 available credit…and you owe $5,000 against that credit, that represents 50% of your outstanding balance…and you will have a MUCH LOWER score.
I will be back next month to share a few more mind-blowing MYTHS with you! In the meantime, if you have any questions about credit or loans in general, feel free to reach out to a 35-year mortgage business veteran, Curt Kravitz, at Bay Equity Home Loans, at 661-705-2500.