Mortgage Lender Tips for Analyzing Credit
This article is specifically addressed to mortgage lenders. Consumers are welcome to read but this article does involve a more complex approach to analyzing credit with terms a consumer may or may not be able to follow.
You, as a lender, pull Tri-Merges all day long in attempt to process your new client’s mortgage pre-approval. The tri-merge comes back with one inch of information per account and you are supposed to submit this through to your underwriters for pre-approval if the client has a score high enough. If the scores are too low you then submit the reports for a rapid rescore to see what can be done to improve. Often times rapid rescores come back with one or two suggestions (sometimes none) that provide a ten point increase which is usually not enough for your client’s needs. The rapid rescores can also become expensive for your client and many of the lenders I know foot this cost.
The truth of the matter is that your rapid rescoring systems are not situated for your client’s specific needs. It does not look into their history, what was paid and reporting inaccurately, what account is truly theirs, state reporting regulations or even federal reporting regulations etc.
For example, in the state of MA it is illegal for debt collectors to report to credit bureaus. While looking at a tri-merge you will come across accounts with labels of: Collection, Medical Payment Data, Sprint, AT&T and more. Each of these is reporting illegally. Collections cannot report. Medical payment data is a collection. Sprint and AT&T (and all phone and utility providers with the exception of Verizon and National grid) do not subscribe to the bureaus and are therefore being reported by collection agencies.
The client (with the help of CCC!) Can argue for the removal of these accounts and potentially forgiveness of the debt due to illegal debt collection practices. Removal of these accounts can lead to a 20 – 80 point increase in scores per account.
Other areas to look at include:
- When was the last time the client’s active/open accounts updated? If the client has an open credit card, it should be reporting every month. For each month reported, the client should obtain specific points for that card history and usage. If the card company stops reporting the client no longer gets those points. This happens quite often.
- Credit card companies and lenders pay to subscribe to the bureaus. They often times try to save money and stop reporting. Or they simply forget to update. A simple phone call to remind the creditor to update can make a 20 point difference in scores.
- Is the account showing the original balance or a limit on the account? If no original balance is shown it appears no progress has been made on the account and the scores are negatively affected. If no limit is shown (this is very common with Amex) it appears the client has maxed out the account and the scores are negatively affected. Again, a quick phone call to ask to report accurately can fix this situation leading to a (smaller) increase in scores of 3 – 5 points.
- Look at the older credit card accounts. Are they closed or simply inactive? If an account has been inactive for years but hasn’t closed out, your client can activate the card and gain years of positive history. This can lead to a 20 point boost in scores, again from a simple phone call to re-issue a card and using it for a small purchase.
- Finally, is your client co-signing for the home? In most instances if there is a co-signer your clients can “piggyback” onto each other’s positive accounts and gain a significant increase in scores (scores can go up 100 points in many instances).
- Example of piggybacking… John and Jane are purchasing a home. They both have 640 scores. John has a Home Depot card with a $5,000 limit that he has had for five years with no current balance. Jane has a Macy’s card with a $5,000 limit that she has had for five years with no current balance. John calls Home Depot and puts Jane on his card. Jane calls Macy’s and puts John on her card. They both cut up the cards when they come in the mail. Thirty days later (or less) each sees their scores are up to a 720. You now have very happy clients.