When a home buyer comes to a mortgage broker and applies for a loan, the difference between a 720, 680, or 620 FICO will make a huge difference in which loan programs they get approved for and the interest rate. Furthermore, consumers will be able to afford more home when buying, save a lot when refinancing, and generally have better options.
In part one of this blog, we covered 5 ways consumers can jump-start a borrower’s credit score.
Mortgage brokers understand that improving a borrower’s credit score is one of the most important things that will benefit their clients. But they haven’t really had to worry about credit scores in recent years, as the housing market has seen historically-low interest rates, widely accessible to most homebuyers and homeowners even if they didn’t have the highest scores.
However, times are ‘a changing, and with interest rate hikes and storm clouds on the economic horizon, it’s not unrealistic to think that we may see a market – and financial – tightening within a couple of years. While loan officers and mortgage brokers have their fingers on the pulse of these changes as they occur, there is one thing that will return to relevancy: credit score.
But you don’t want to wait six months to a year to organically improve their credit score (nor will they wait around!). Luckily, we have some tactics and strategies that can help improve a consumer’s credit score in short order. In this blog, we’ll bring you the first five strategies, and look for the next five in our upcoming blog.
And you can always contact Nationwide Credit Clearing for more information on how to improve your credit score (or your client’s score) quickly
- Pay for deletion of collections
Many of us have collections on our credit reports, which can do some serious and ongoing damage to your score. But, there may be a way to get it removed. If you’ve missed enough payments to have an account in collections, your creditors may agree to erase any negative credit reporting for that account if you pay it off.
The good news is that you can also negotiate your payoff, and if it’s in collections, they may accept less than the full amount to settle you up – sometimes even 50 percent of your balance or far less!
Once you negotiate the payoff amount AND they agree to remove the item from your credit report, only pay the collection via a mailed certified check, with “Cash only if you delete account from credit report” written above the endorsement line. Also, make sure you get their promise in writing via a letter of deletion. We can use the letter to apply for a rapid rescore instead for you, so you won’t have to wait a month or more to see your credit score rise!
- Add accounts that aren’t showing up
A surefire way to increase credit is to add positive accounts that aren’t currently being reported. Although FICO doesn’t actively publicize this information, you can do that by requesting unreported accounts be reflected on your credit. Of course, only add accounts that were in good standing, but this can add well-seasoned positive credit lines that boost your score.
Think about any company that pulls your credit and you pay the bill on time. For instance, cell phones, Internet providers, utility companies, and medical billers often don’t bother reporting credit (because it’s not mandatory) and even landlords can report rent payments. If you ask them to do so, they very well might comply – posting a well-seasoned, positive new trade line on your credit score.
- Remove federal liens
New rules have been phased in by the credit bureaus that make federal liens like tax liens, judgments, etc. less harmful to a borrower’s credit score. Due to that change, millions of Americans may see an increase to their scores without doing anything. It also may make it easier to remove harmful liens from credit scoring consideration, depending on the type and circumstances.
For instance, the IRS has a program that allows them to withdrawal the lien and deletes it from the consumer’s credit report if it’s paid. Even better, the IRS will now remove their lien from your credit report even if you still owe a balance under $25,000, as long as the taxpayer is making monthly payments as promised.
For any federal lien removal with the IRS, just call them to get the forms you need to apply for a lien withdrawal request. However, it does usually take the IRS 60 days to process lien withdrawals, at which time you’ll be issued a lien-withdrawal letter that you can get to the credit bureaus or use for a rapid rescore.
- Become an authorized user on someone else’s credit card
We talked in part one of this blog about removing authorized-user accounts that are hurting their score. However, you can also flip that. One of the most efficient ways to increase your credit score in short order is by becoming an authorized user on someone else’s credit card. Once you’re authorized, the new positive trade line will show up on your credit within 30 days as if you’ve had it for the duration.
It’s important you do this correctly – it has to be a credit line in great standing and make sure you offer your social security number, so they report it to the credit bureaus correctly. Additionally, it should be someone you trust well (and they trust you!) because if the primary user runs up big debt, has late payments, or defaults, you’ll be on the hook, and your credit will actually be damaged. But FICO knows a lot of parents do this to build their teen or college-aged children’s credit – and it’s a perfectly legal practice, so check to see if the lender has specific requirements or rules for added tradelines.
- Rapid Rescore
A Rapid Rescore is a process that lenders can use that quickly re-calculates a borrower’s credit score after they’ve don’t something to improve it, like pay off a credit card, dispute an incorrect late payment, or the like. Instead of waiting for the correction to appear on the credit score naturally – which will take much longer – a Rapid Rescore is a convenient service that will process that updated score in short order.
A Rapid Rescore fills a need or solves a problem any time you need your score to be accurately updated ASAP. For instance, timing is everything if you’re under contract for a home purchase but can’t go forward with the deal if your mortgage loan isn’t approved due to a subpar credit score. At that point, paying off debt or doing something to improve your credit and then doing a rapid rescore can save the deal.
Bonus tip:
Are you really serious about improving your credit score before buying a home or taking out a loan, and therefore saving yourself a whole lot of money? Mortgage brokers – do your clients desperately need a credit score boost in a short window in order to qualify or access the best rates?
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If you have more questions about improving credit scores quickly, contact Nationwide Credit Clearing for a free credit report and consultation!
