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Losing Clients Because of Their Bad Credit?
Here are Some Helpful Tips:

Any Loan Officer with even a month in the
origination business has experienced the complication of clients
with marginal credit. Even with the dizzying array of sub_
prime products available, many borrowers cannot qualify for a
suitable loan because of credit issues. When faced with this,
originators are put in a lose_lose_lose situation: The borrower
doesn't get the loan, the originator and the firm earn no
income, and the long_term_referral and repeat_business
relationship is not established.

While many originators throw up their hands and simply move on
to the next client, there are some proactive steps you can
guide your clients through to repair their credit. By offering
this guidance, you establish a helpful, trusted, long_term
relationship with the client and often fund their loan even if
its two months later. Here are some tips.

First, give your clients accurate information. Seem obvious?
Perhaps it is, but I say this because I frequently hear
experienced loan officers giving inaccurate information
concerning credit reporting and credit scores. The rumor mill
is in full gear when it comes to this topic. One myth being
disseminated is the notion that paying off old collection and
charge_off accounts improves the borrower's chance of getting a
loan.

In general, derogatory credit remains in a consumer's credit
file for seven years (Chapter 7 bankruptcies last 10 years)
that's seven years from the date last active. By paying off
these old accounts, the date last active changes from say, six
years ago, to the current month, and the seven_year clock
starts all over again.

To add insult to injury, credit scores are weighted by how
recent the derogatory accounts are. A one_month_old "Paid
Collection" account does far more damage to a credit score than
a six_year_old "Charge Off." While it may seem ironic that
making good on one's obligations can hurt a consumer's credit,
it does and I have personally lost loans because of this
misdirected action.

A client in this situation may have a couple of effective
methods at their disposal. If the client has the cash
available to pay off the old accounts, they should call the
creditor reporting the collection account. It is important
that they insist on speaking with a credit manager that has
authority to negotiate settlements. Speaking with a low_level
bill collector will get them nowhere. Once this individual is
found, the client should offer a settlement of 70% or so (be
flexible) of the outstanding balance. This offer must be on
the condition that the status of the account be reported as
simply "Paid", not "Paid Collection" or "Paid was 60", etc.,
and the date last active remain unchanged. Make sure the
client receives this agreement in writing prior to making any
payment. Once the account is paid, the client loses all
leverage.

It is important to note that the older the account is, the
easier it is to negotiate such a settlement. If a settlement
cannot be reached, typically the best approach is to wait until
closing to pay off the account. At least this way, the file is
underwritten with the older derogatory information affecting
the credit score. Although conforming programs will require
these old accounts to be paid off, many sub_prime programs do
not have such requirements. In this case, the client should
simply let the old accounts fade off the credit report with
time.

A common myth is the impact of inquiries on credit scores.
Just this morning I heard a radio advertisement from a mortgage
company with the message, "Don't use those other mortgage
companies. They will pull your credit file, and every time
they do it, your credit score goes down. While this scare
tactic marketing may produce some business, it is absolutely
incorrect and, in my opinion, unethical.

Inquiries fall under the general category "Pursuit of New
Credit." Also in this category is "Length of Time Since Most
Recent Account Established." I can assure you that two new
credit_card accounts opened last month will do far more damage
to a credit score than a few inquiries. Additionally, the
entire category "Pursuit of New Credit" is fourth on a list of
five categories that affect credit scores (which I outline
below), and is estimated to carry a weight of 20%_30% in
determining a score. Simply, inquiries, unless excessive and
recent, have very little impact on credit scores.

Even more important is the way mortgage inquiries are now
handled. First, they have no impact on a credit score for
thirty days (the same applies to auto loans). Additionally, all
mortgage inquiries within a 14_day period count only as one
single inquiry. The aforementioned radio spot was clearly
using misleading information.

As promised, listed below in order of importance are the
factors that impact credit scores:

1. Previous credit performance
Major delinquencies
Length of time since last delinquency
Judgments, bankruptcies or liens

2. Current level of indebtedness
Proportion of balances to credit limit
Total amount owed
Number of open accounts

3. Amount of time credit has been in use
Age of account
Length of time since account opened

4. Pursuit of new credit
Time since last account opened
Inquiries

5. Type of credit used
Number of revolving accounts
Number of finance company accounts

Second on the credit_score list is the category "Current Level
of Indebtedness," which includes the sub categories "Proportion
of Balances to Credit Limit," "Total Indebtedness" and "Number
of Open Accounts." I'll use a "war story" to illustrate.

A potential client arrived at my office to apply for a
conforming refinance. During the initial interview, he
announced that he had "A+ credit." He knew this because he had
never been late, and every credit card company in the country
wanted to give him a card. What he, and most consumers, don't
know is there are many factors other than late payments that
affect credit scores.

When I pulled his credit report, I discovered that he was
absolutely correct. He had never been late, and every credit
card company in the country wanted to extend him credit.
Unfortunately, he had accepted nearly all of those offers. He
had 32 open accounts (including 4 gas station cards and 11
department store cards), and all of the smaller accounts were
maxed out. His credit score was 595, a conforming loan was out
of the question, or was it?

Step One: Close Accounts. Obviously the "Number of Open
Accounts" was a factor in the client's credit score. I
immediately instructed him to close all of the "junk" accounts,
while keeping his major credit cards. (Gas station and
department store credit cards can be an important part of a
credit_reestablishment program; otherwise, too many of them can
drag down credit scores.) He didn't have a lot of cash
available so we refinanced these cards by rolling their
balances into his major credit cards, and then closed the
smaller cards out. This ended the "Number of Open Accounts"
issue altogether.

Step Two: Increase Credit Limits. This is an excellent
technique, regardless of the number of open accounts. "Maxed
out" credit cards can really hurt credit scores. Generally
speaking, consumers that borrow every penny available to them
are on the road to trouble. It is a proven risk factor. A
credit card with a $5,000 credit limit and a $5,000 balance
costs significant points. The same card with a $500 balance
earns points.

I instructed my client to call his credit card companies and
request credit_limit increases. After closing most of his
accounts, he only had 4 open credit cards, and three of the
four creditors complied with his request _ each increasing his
limits by several thousand dollars. Now we had solved
his "Proportion of Balances to Credit Limit" problem. Keep in
mind, this technique only works if the client does not use this
new credit.

All we had left to do was to sit back and wait for this new
information to be reflected in his credit files. A month
later, the client returned and we pulled his credit. I must
confess I was amazed. His score had improved by a whopping 67
points. We closed his loan two weeks later.

Normally I don't get this personally involved in my client's
credit repair process. Rather, I simply give them a free copy
of my booklet titled Guerrilla Credit Repair that discusses
meticulously "The Five Myths of Credit Reporting," and the "10
Steps to Building A+ Credit" including the removal of old bad
credit items and adding new good credit. In addition, there
are special chapters on bankruptcy, divorce and student loans.
This has proven to be a very effective marketing tool for me
and my loan officers.

For information on receiving a copy of Guerrilla Credit Repair
send a BLANK email to FICO_Doctor_2@mortgagepro.par32.com
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However the credit repair process is accomplished, your
guidance to the client will not only aid in solidifying your
long_term relationship, it can also get those "impossible"
loans funded.