While the subprime debacle is responsible to a great degree
for the current downturn in the economy, the ongoing
malaise in the housing market is not completely due to
people not wanting or fearing to buy homes; it is due to a
large part by poor credit scores keeping people from
getting a mortgage or a mortgage refinancing deal.
To make matters worse, with the horrifying increase in
foreclosures across the country, the mortgage, and mortgage
refinancing problem for mortgage brokers is just going to
grow.
When an individual's credit score goes down, so does their
choices for mortgages and mortgage refinancing options. To
compound the matter, hundreds of "credit repair" services
are popping up that are quite often at best undependable.
Good credit is an absolute must for a loan originator to be
able to put through most reasonable mortgage and mortgage
refinancing deals, and with the problem not going away
anytime soon, it behooves the loan originator the help
their clients with ideas for the credit repair process of
improving their credit scores.
This type of credit repair advice is the way that a
mortgage broker can turn a potential client into the "real
deal" and close their mortgage or mortgage refinancing
deal. Also, if done properly, more often than not, the
process can take place in a relatively short time span.
Step 1
Realize that rebuilding an individual's credit score is an
ongoing process and requires thoughtful preparation to
successfully rebuild his or her credit to an acceptable
level to obtain a well structured mortgage or mortgage
refinancing product.
For this reason be sure that as your client starts a credit
rebuilding program, that whatever your client decides that
they can budget and implement, they need to make sure that
it is something that they can stick with and that their
payment structure is such that they never fail to pay their
obligations on or before the dates that they are due. Being
late on payments from being too ambitious when planning
their program will compound the problem and may "put the
final nail in the coffin" of their plans to obtain a new
mortgage or do any mortgage refinancing.
If there are extenuating circumstances such as divorce,
insist that they review their credit program with their
attorney before agreeing to anything.
Step 2
If your client's credit card companies have not reported or
have understated their credit limits on their credit cards,
it can hurt their credit score. For this reason, have your
client determine if their credit card companies are
understating their credit limits on their cards. Often
credit limits are reported as lower than they actually are
and frequently may not be reported whatsoever.
While we are on the subject of credit cards, make sure that
your client has a minimum of three credit cards or other
sort of revolving credit. Many people mistakenly believe
that if they have credit cards it actually hurts their
credit score and because of this, they cancel some or all
of their cards. This can actually damage their credits
score and hurt their chances of getting a new mortgage or
doing any type of mortgage refinancing program.
Furthermore, if they do not have any credit cards, have
them obtain at least three. If they have trouble with
getting typical cards like Visa, Master Card, Amex etc,
tell them to try a local department store, or a Home Depot
or Lowes. Quite often these types of stores are more
lenient in granting revolving charge accounts.
Step 3
Make sure that your client reduces any outstanding credit
card balances to under 30% of their credit limit on each of
the individual cards. Some people mistakenly think that the
30% figure is based on their overall revolving credit card
balance, but this is false. A single card over the 30%
balance can nullify the benefit of the effort of having the
revolving credit cards in the first place.
If your client has one card over the limit and several
others under the limit, if they are limited on cash and
cannot pay down the high card, have them see it they can
transfer some of the higher card's balance to the lower
cards. Have them check first before doing this to see if
this type of transfer creates a higher interest rate or any
other adverse effects on their credit.
Thus, if an individual has 3 credit cards with a total of
$12,000 credit, but two of them have a $2,000 limit and the
other has an $8,000 limit, make sure that they keep the
$2,000 limit cards under $600 each and the $8,000 card to
under $2,400.
Implementing this simple process will cause credit scores
to rise, along with the possibility of obtaining that
desired mortgage or mortgage refinancing program.
Step 4
When helping your client to raise their credit scores, make
it a point to frequently pull their credit reports for them
to determine their status as well as any errors on their
reports.
Errors are so common on credit reports that over 75% of all
credit reports have a minimum of one or more mistakes on
them. Just by their being diligent and carefully insuring
that any incorrect reporting information is removed, their
credit score will quite often go up incredibly. This is
certainly one of the easiest and most effective things that
your client can do immediately to improve their score
dramatically along with the possibility of them obtaining a
new mortgage or mortgage refinancing of their existing
mortgage.
Step 5
If your client's credit has been damaged to the point of
having been sent to a collection agency, they probably will
not want to immediately pay off the credit card debt.
Amazingly, this can actually hurt your client's credit more
than it already is with the collection issue on their
record.
When one of your clients have been sent to a credit
collection agency, the effect on their credit is low after
about two years and is virtually wiped out after four years.
Thus, if your client does determine to pay off a debt that
has been sent to a collection agency, be sure that they
receive a letter from the collection agency stating that
the collection agency will send what is called a "letter of
deletion" to the credit bureaus immediately after the bill
is satisfied to insure that the disparaging credit problem
is completely removed from their credit report. Stress to
your client that they should not pay anything on the bill
until they receive in writing the agreement for the letter
of deletion from the collection agency.
Most people trying to improve their credit to obtain a
mortgage or mortgage refinancing on their home think that
they need to pay off everything as quickly as possible, but
this is one case that paying before you obtain the proper
documents protecting your situation can actually seriously
hurt your credit. People have in reality completely paid
off a debt or negotiated a settlement to learn to their
dismay that they now have no leverage to get the collection
agency to send the letter of deletion.
Step 6
Finally, if your client does not make paid installments on
a car or a boat, have them take out some sort of
installment loan with someone like Best Buy or Sears on
some needed appliance or with Staples or Office Depot for
some business equipment. Credit bureaus look carefully not
only at the fact that you have credit, but also the blend
of the types of credit that you have. Having just credit
cards only is not as advantageous as having credit cards
and some sort of installment payment loan.
The only thing that I will caution you with here is to be
careful of the interest rates on any new installment loan
that you may obtain. Some of these rates can be "out of the
roof" and create undo stress on the monthly budget.
Also, unlike the credit cards which you should keep in
perpetuity, obviously, revolving credit comes to some point
at which the loan is satisfied and the monthly payment
ceases. Your client should not buy just for the sake of
buying, but if they are trying to improve their credit
scores, planning a purchase that they might have paid in
full with cash, would be better if they put a substantial
amount down in cash and then financed the balance on an
installment loan. This type of arrangement can frequently
reduce the interest on the loan as well.
----------------------------------------------------
Phillip P Gilliam is 58, and currently lives in Florida
with his wife and youngest daughter, and is a native of
Ohio. He went to Wright State University and has over 37
years experience in marketing, software development,
business management, and finance. You can contact Phil at
http://www.home-mortgage-refinancing-mortgage-company.com
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