Written By: NAMU® Op-Ed Ghost Writer
In cases where borrowers are unable to qualify due to unacceptable credit, lenders may provide credit repair coaching as a customer service benefit.Providing this service will allow the consumer to reapply at a later date with more success. Prior to issuing an adverse action, explore all options for approval. This will allow you to provide detailed information to the borrower regarding areas where their credit application can be improved.
The borrower may start with obtaining a copy of their credit report. Remind customers that credit scores are determined by multiple credit factors. Every credit report lists credit score factors that impact the FICO. Examples of credit score factors are: “Length of Time Revolving Accounts Have Been Established”, “Level of Delinquency on Accounts”, and “Too Many Inquiries in the Last 12 Months”.
Delinquent payments, collections, charge offs, judgements, and high balances on revolving debts can negatively impact credit scores. If borrowers are paying off debts to improve their scores, it is important to retain all “paid-in-full” letters. They may need to submit these documents to the credit bureaus to update trade line reporting.
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If something on the credit report is erroneous, consumers may dispute the data with the credit bureaus. However, keep in mind that disputes on trade lines with outstanding balances may impact loan decisions on future applications. Many agencies and investors have more stringent guidelines for borrowers whose credit report reflects disputed accounts over a certain dollar amount.
In the case of judgments and liens, the borrower must retain a release of lien letter. The customer may have to reach out to the appropriate municipality to obtain a copy of a release of lien letter. Submitting this letter to the credit bureaus can also assist with FICO score improvement.
Another step borrowers can take is to make all payments on all trade lines within 30 days of the due date for at least 12 consecutive months. Paying down outstanding credit card balances, thereby decreasing the balance to credit limit ratio, will also improve credit. If possible, consumers should pay revolving debts balances down to 30 % or lower of the total credit limit. Even if borrowers pay their balances in full each month, a high credit card balance can negatively impact qualifying debt-to-income (DTI) ratios at the time of application.
When the borrower is working on improving their credit score, it is imperative that they limit new applications for credit. New debts may negatively impact the final qualifying DTI.They should also be made aware that applying for new credit in the middle of a loan transaction is not advised. New debts reflected on the credit refresh may cause delays in closing or flip approve recommendations to refer/ineligible status.
Rebuilding credit takes time but it can be done. Delinquencies stay on credit for seven years,credit inquires remain on credit for two years, and most public records remain on credit for seven years. Some bankruptcies and unpaid tax liens can remain on the credit report for 10 years. However, by providing these tips, you can give prospective borrowers a plan to get on the right track toward achieving their dreams of homeownership.
About The Author
All of NAMU® op-ed writers range from veteran mortgage processing & underwriting instructors to senior level executives. They have each conducted numerous mortgage processing & underwriting training classes and have worked in the mortgage banking industry for 25+ years.