Want to Find the Best Consumer Credit Tool? Start with the Applicant.

We’re passionate about the importance of addressing the consumer’s credit score from the very beginning of the mortgage conversation, just as soon as the applicant’s mortgage credit score is known. Not only does addressing credit at the beginning offer the applicant the best chance at obtaining the optimal financing package, it also heads off a difficult conversation. Consumers, now more than ever, have a great deal of information about their credit score, though few possess what we would call knowledge.

In fact, when we surveyed recent applicants last year, 95% told us that they came to the table with what they believe to be a good idea of what their credit score is. Unfortunately, the score they are carrying in their head is not the score mortgage lenders use to underwrite mortgage loans. This discrepancy in scores can cause applicants to wonder who is telling the truth – the company they use to track their score or one of the mortgage lenders they are considering. We know that this is a case of two things being true: readily available credit scores are used for consumer credit purposes. Mortgage credit scores are single purpose. Both are correct; they just happen to be measuring different things. As competition heats up in a down market like the one we are experiencing, you want to be establishing trust with your applicants from the very start.

The good news is that a growing number of innovative lenders are starting to pay more attention to the borrower’s credit, with an eye toward helping them better their score before the closing date.

But when it comes to bettering credit, too many lenders look to the wrong tool. To land on the right tool for the job, you need to first look at the types of applicants that could benefit from a higher score.

The 3 Types of Applicants that Could Benefit from a Higher Credit Score

Those with Inaccurate Information on their Credit Record. According to a 2013 FTC study, 19.2% of credit reports contain some kind of inaccurate information. Applicants in this category could look to dispute the inaccurate information themselves or turn to a Credit Repair company. While the FTC has released some data on the percentage of credit reports that contain some kind of inaccurate information, there are no studies that we could find on the efficacy of credit repair.  We’ll cover Credit Repair in greater detail below.

Those with Significant Financial Challenges. These applicants are oftentimes not truly ready to purchase a home and could use help from a third-party to “improve their relationship with money.” If you assume that those with significant financial challenges are those with initial credit scores in the sub-500 range, they represent less than 1% of all applicants (according to our internal analysis of the 24.2M inquiries we analyzed in all of 2021). This segment of consumers may benefit from credit counseling. We’ll also cover Credit Counseling in greater detail below.

The 71% of Applicants with an Initial Mortgage Credit Score Below 760. These applicants could better their credit scores by making immediate changes that could increase their score by at least 20 points within 30-days. Unlike the other two applicant types, there are many of these. In calendar year 2021, CreditXpert analyzed just over 16M inquiries that fell into the sub-760 category and 11.4M (71%) could have a credit score that is 20-points higher within 30-days. It would be wise for lenders to focus their attention on this pool of applicants… more on the 71% later on.

Correcting Inaccurate Information on a Credit Record

Inaccurate information on a credit record is nothing new. When you step back and consider the increasingly wide-spread use of credit and the vast amount of information credit bureaus collect and maintain, it is somewhat understandable.

Missing data, data that belongs to a different consumer, or data that is out of date, can deliver credit scores that do not reflect the real risk in any deal involving the applicant in question. We understand that getting a consumer’s credit score exactly right is a challenging task.

As mentioned above, applicants can scan their credit file and find inaccuracies and submit disputes to the Credit Bureaus.  For most, this is a daunting task. For those that choose to work with a Credit Repair company, they can pay a professional an initial fee and a monthly “subscription” to identify, submit and resolve the disputes for them.  While we don’t know the success rates or the credit score increases applicants typically achieve with Credit Repair, we do know that it can be a lengthy process.

Unfortunately, some bad actors in this industry have built businesses out of disputing everything on a borrower’s file with the knowledge that the reporting bureau would have to remove the information until it was confirmed, providing a window for reckless lenders to try to get the loan closed before the real score was reinstated.  It is important to note that, generally speaking, a mortgage cannot be underwritten with open disputes.

Despite the lack of quantifiable outcomes and lengthy resolution timeframes, we often hear that many mortgage lenders refer rejected applicants to Credit Repair. There’s a better way. Identify the applicant’s credit potential using CreditXpert’s tools. They will quickly show you the credit potential, outline the steps the applicant must take to achieve a higher score and the probability of success, which is usually greater than 94%.

Those with Significant Financial Challenges

For many, the data in the bureau’s file is largely correct and the low credit score is the result of the applicant making bad financial decisions. A solution to this problem is provided by Consumer Credit Counseling firms who could both consolidate the consumer’s debt into a payment plan and negotiate with creditors to begin the process.

For many consumers who never had the opportunity to learn about managing their credit and protecting their scores, this is an important service. It is not a solution that will allow these consumers to qualify for a mortgage anytime soon and so it is generally not part of the credit conversation that loan officers will have with borrowers they can serve. Mortgage loans close in as little as 30 days. Credit counseling can take anywhere between 6 to 36 months to see results

CreditXpert and the 71%

CreditXpert does not solve the problems of those who fall into the first two applicant types, credit repair and credit counseling, respectively. In fact, the hundreds of thousands of applicants who benefit from CreditXpert’s data-driven credit betterment plans each year haven’t mismanaged their credit nor do their credit files contain incorrect information.

The applicant’s credit score is actually what the bureau’s report shows. It’s correct at the point in time it is pulled. It is also situationally correct: the score is based on the data in the consumers credit report. That said, most people know very little about how to best manage their credit. There are nuances and counterintuitive things that most are completely unaware of- but, if adjusted for, could have a significant impact on a score in a short period of time.

A few good decisions made and acted upon today could better these applicant’s scores by AT LEAST one 20-point credit score band by the time the loan closes. And after analyzing millions of consumer credit reports, we know exactly what those actions are… click here to see how we do it.

Will a credit score improvement of as little as 20 points make a difference in the deal the loan officer can offer an applicant? You bet it can. And in a market as competitive as this one, that can make all the difference.

That’s why an applicant’s credit needs to be one of the first things the lender discusses with a new loan applicant. Looking to close more loans in this competitive market?  The path to success doesn’t run through Credit Repair or Credit Counseling. The path to success runs through CreditXpert.