6 Credit Repair Steps to Close More Mortgage and Mortgage Refinancing Deals for Your Clients
6 Credit Repair Steps to Close More Mortgage and Mortgage Refinancing Deals for Your Clients 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.
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.
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.
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.
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.
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.
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.
About the Author:
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 www.home-mortgage-refinancing-mortgage-company.com
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