As the originator, you are exposed to many different credit profiles. You’ve gone through the whole gamut and you’ve seen the good, the bad, and the ugly. But nothing compares to denying someone a mortgage on the basis of their credit risk. Not only is it frustrating to lose customers, having to tell a mortgage applicant the bad news can be overwhelming.
The more you know about credit, the better prepared you will be to deal with sticky situations like this. Here are some tips that could help your applicants get on the right track and boost your credit knowledge.
Make sure your credit reports are accurate
Follow the 30 percent rule
Always make sure your account balance is below 30% of your credit limit. This is called your credit utilization rate. If you exceed this threshold, you could have problems even if you pay off your account balance in full each month. Although 30 percent is the age-old axiom, you want to keep your percentage well below that estimate – in fact, perfect credit consumers have an average credit usage of just seven percent. Keep all of this in mind, as your credit usage is roughly 30% of your overall credit score.
Have a strategy to avoid late payments
Get started on paying on time, every time. Try to sync your payment due dates with your payroll calendar, and consider signing up for your bank’s mobile alerts so you never miss a payment. If you’ve missed a payment, try calling the creditor. Often times, they will forgive a late payment if you have a good payment history.
Establish a credit history
About 15% of your credit score is determined by the age of your credit history – how long you’ve been using credit. Be patient; major bureaus tend to look for credit histories of more than five years, and the more responsibly you manage your credit the better. For example, if you have a credit history of only one year, your score might be in the range of 600, while someone with a five-year credit history might have a much higher score.
Apply for different types of credit. Of course, you should only apply for trade lines that you can handle, but diversification can really benefit your score. Bureaus like to see a diverse build up of responsible credit behavior, including activity with credit cards, auto loans, or mortgages. After you’ve used plastic responsibly for about a year, consider applying for a small installment loan from your credit union or bank.
Establish checking and savings accounts
Lenders view checking and savings accounts as signs of stability. Opening a checking and savings account is also one of the few things you can do as a miner to start building a financial history. Although you cannot get a credit card in your name until you are 18, many banks will have no problem allowing you to open an account.
Become an authorized user
Ask a close friend or family member to list you as an authorized user on their credit card account. When the primary cardholder makes payments on time, your credit score will benefit. Since credit card companies do not have a minimum age to become an authorized user, this is a great way to build credit at a young age. While being an authorized user can help you build your score, it doesn’t carry the same weight as maintaining full ownership of a credit card account, so you shouldn’t expect an increase. considerable in your score, but it’s a start.
Apply for a secure credit card
If you can’t get a regular credit card, ask for a secure version. These require you to deposit money with a lender, and your credit limit is usually equal to the deposit. You’ll want to take a close look at your card issuer though, as many will charge exorbitant application / annual fees or punitive interest rates. Ideally, the card you choose will convert to a regular, unsecured credit card after 12-18 months of on-time payments.
Closing a card can do more harm than good
If you have a credit card that you aren’t actively using, closing it won’t do you much good, and it could even lower your score. When you close an unused account, the amount of credit you have available decreases. This will increase your credit utilization rate, which is the percentage of available credit that you are using. Since it is recommended that you limit the use of your credit, closing a credit card will not help.
Remember the date
Try to pay as much as possible before your credit card closing date. Since your statement balance on that date is directly used to determine your FICO scores, you want to present yourself to the offices in a good light during this time. The trick is that it doesn’t require you to directly change your spending behavior, it just means you’ll have to focus on your business earlier in the billing cycle. It’s a “hack” that could earn you some serious points, and you use your card the same way as usual.
Boost your score
Using a new tool from Experian, you can now link additional data such as phone and utility bills to your credit report. The service is free and you will also receive a copy of your credit report. If you have a “thin” credit history with few accounts, adding this information could be the perfect way to really make an impact. Of the 1.3 million Americans who have used the tool so far, more than 840,000 have seen their scores increase.
Secure your credit report
Beware of difficult surveys
If your credit was taken because you were looking for a new loan, your score could go down because the agencies assume that you are planning to take on more debt. This is called a “hard investigation”. If you are shopping for a new mortgage, several lenders could withdraw your credit within a short period of time. If this happens to you, FICO will recognize that you are shopping and will only penalize you with one request, as long as those credit withdrawals take place within 45 days.
Dispute any errors on your report
If you think there is an error on your credit report, follow these steps:
►Determine whether you need to contact the provider of the report, that is, the bank or the company that issued the credit card. Sometimes you can go directly to the vendor before contacting the office and asking them to correct the error at the source.
►If that doesn’t solve the problem, send a letter to the office that produced your report (either Experian, TransUnion, or Equifax) and explain in writing why you think something is wrong.
►Wait for a response. In most cases, it can take up to 45 days.
►Examine the results. Bureaus are required to send a free and updated copy of your credit report if the dispute has resulted in any changes.
Say no to pre-approved offers
Pay highest balance first
Let’s say you have two credit cards… Card A has a limit of $ 1,800 and a balance of $ 300. Card B has a limit of $ 1,000 and a balance of $ 800. You must always repay the card with the highest credit utilization rate. In other words, the card with the lowest percentage of available credit available, which would be Card B. Remember the 30 percent rule … for Card B that would mean you want to keep your balance below $ 300.
Don’t look for perfection
You don’t have to be perfect. Only one percent of the public has a perfect score of 850, and there is no loan offer exclusive to perfect applicants. In fact, lenders usually reserve the best interest rates for all borrowers over $ 760. So don’t stress! Continue to adopt responsible credit habits and you will be rewarded.
Do not give up
While many of the above tactics can boost your score quickly, it usually takes years to build up your credit. But like anything else, practice makes perfect. And if you focus on the little things, chances are you’ll be pleasantly surprised.
If you found these tips helpful, please share them with a friend. Remember that the habits you develop while learning about credit responsibility can be very helpful in many other areas of life, and they can set you up for long-term success. If your goal is to be smart with your money, building your credit history is a great place to start.