Credit Scoring & Re-scoring
In this day and age if you are like most you will need to utilize credit to some extent during your lifetime and your credit score will be used in that process.
It is important that you have a practical understanding of your credit and you know the factors that affect your credit and credit score. By understanding the factors involved and how credit actually works you will put yourself and your family in position to maximize your credit score and obtain credit at a good—or the best rate.
Don’t do like many consumers did prior to the great recession of 2008 and approach your credit in a cavalier manner! You must realize that it is your responsibility to manage and improve your and your family’s credit and finances to a high level—and not anyone else's!
If you make a serious commitment to understand and apply credit in a serious and effective manner you can have a successful credit and financial future.
Prior to the real estate market meltdown in 2008 many consumers went into their home purchase and other credit obligations without having an understanding of credit and how it works.
Many did not know their credit score situation prior to contacting a loan officer or real estate agent and in many cases that was a big mistake!
Many others were placed in sub-prime or other inappropriate loans. Still others could not qualify for a loan initially and had to go through a rapid re-score or other re-scoring of their credit score—in order to get their loan approved.
When it comes to managing and improving your credit and credit score—you must know the real problem in order to solve the real problem with the right—or best solution!
What does re-scoring consist of?
Re-scoring is a process by which a loan officer or mortgage broker resubmits a request for a credit score to a “reseller” and the reseller recommends a strategy to the loan officer that will help the borrower get approved on the second attempt—or help the borrower get more favorable terms when applying for a loan—particularly a home mortgage loan.
In a nutshell—this is how it works:
• The borrower provides documents that the reseller requests—through the loan officer
• The Loan Officer or Mortgage Broker forwards the documents to the reseller
• The Reseller verifies that the documents are legitimate
• The Reseller forwards the documents to the re-score desk at the Credit Reporting Agencies selected by the reseller—or determined by the loan program
• The Reseller confirms the changes—and make the changes available to grantors like Fannie Mae and Freddie Mac
• An Improvement in your credit score would normally be the result
• Keep in mind that there is never a guaranteed increase in your credit score
• There are cases when your credit score could actually decrease
• The algorithms and calculations used in credit re-scoring are highly secretive
• Keep in mind that disputed accounts cannot be changed
• If you have a mixed credit file (more than one person in your file) they too—cannot be changed in a credit re-score
There are several “resellers” on the market. One of the leading resellers are LCSI or (Lenders Credit and Services Incorporated) based out of Baltimore, Maryland.
The benefit to you of a re-score would be that it would allow you to possibly qualify for a loan that you were previously denied or provide you a higher credit score so that you could get a loan at a better (lower) interest rate.
You must realize that if you have top of the line type of credit—you can get the best interest rate. If your credit score is at the lower end of the spectrum—you would possibly have to settle for a sub-prime loan where your interest rate and monthly payment would be substantially higher.
Depending on the purchase price, down payment and other factors the payment spread could easily be several hundred dollars on a monthly basis—and several thousand dollars on an annual basis.
By utilizing a sub-prime loan you are in effect—in many cases paying your lender several thousand additional dollars a year that could be going towards improving your and your family’s living conditions.
What You Can Do To Avoid Negative Credit Options:
You can go into your credit or loan commitments from a position of strength if you make a commitment today to analyze and apply the advice on this site—and particularly the advice on our credit improvement page!
If you have an incorrect payment history in your credit file with any of the three major credit bureaus—you can dispute that information.
If you have delinquencies that can be brought current and you have the means and know-how to bring them current—you can do so prior to applying for a loan.
If any of your credit reports show that you owe a balance and you know that the balance has been paid-in-full—you can get the required proof from the creditor or if you have it yourself you can submit the information to the credit bureau(s) or dispute the balance owed—and have it removed or corrected on your credit report.
If you have an account that belongs to you—but should not be on your credit report because it was paid you can dispute that and provide the required proof and have it removed or corrected on your credit report.
If accounts are included where you are only an authorized user—you can dispute that account and have it removed because as an use authorized user—you are not legally obligated to pay in many cases . If you are a co-signor or joint user you would be legally obligated to pay.
If you have revolving accounts that have high balances or are maxed out you can put together a payoff plan—prior to applying for your loan. If you have 3 credit cards and can get them below 30% of the outstanding balance—your score could increase dramatically in some situations!
How Credit Card Balances are Evaluated by the Credit Bureaus?
• Credit bureaus look at your credit balance and credit limit of each card individually
• Credit Bureaus look at your average balance to credit limit by dividing the sum of the balances of most open and closed accounts—by the sum of the credit limits for those same accounts.
Be sure to avoid high balances on
your credit cards. By doing so you will increase your credit score with either of the
above methods that credit bureaus use—if your goal is to maximize your credit
Always remember—that “re-scoring” is not offered directly to consumers (you).
Be proactive in your approach to your credit and finances. Don’t put yourself in position where you will have to even remotely have a re-score done.
In many cases even if you were a good candidate for a re-score—and a credit re-score could benefit you immensely most loan officers and lenders won’t inform you of the availability of a rapid re-score.
A re-score cuts into their profitability—when they offer you a loan at a better rate with lower fees. In addition, there are out of pocket expenses that the lender or mortgage broker will have to pay—if they were to re-score your loan.
By Managing & Improving Your Credit and Credit Score on the Front End—You Put Yourself in Position for Future Success
If you had a 640 credit score and $20,000 in savings and had 3 credit cards that were close to being maxed out with total balance of $3,000, and an auto loan outstanding of $3,000 and you were approved for a loan at 7% where the lender and loan officer could gain all types of fees—from junk to yield spread premium—at a higher rate—do you think it is in their best interest to tell you—even though it would possibly save you thousands on an annual basis—and cost them only several hundred dollars up front—that they could pass on to you?
You would benefit immensely if your lender told you that if you pay down your total credit balance to $1,000 and pay down or pay off your auto loan (loans of 12 months or less are not considered in the front and back-end home loan qualifying ratios) you could possibly increase your score (by having a re-score done) significantly and get a loan at a rate where you could "save" thousands on an annual basis.
By having $20,000 in the bank you could use several thousand dollars to pay down your debt obligations and improve your credit score—fairly easily!
It is important that you have the right knowledge and utilize that knowledge prior to applying for your home loan—or any loan!
You cannot just "hear" what is being said—you must execute what you are learning if you want true success at a high level!
You must always remember that it is your responsibility to maintain and improve your credit and finances in an effective manner.
In many credit and financial transactions during your lifetime you may not be operating from a position of strength—if you don’t take the time now to manage and improve your credit to a high level.
In today’s society—you can’t depend on others to look out for your best interest.
If you master the credit improvement and finance improvement pages on this site you will put yourself and your family in position to operate from a position of strength—and not weakness—with the knowledge and understanding that you will gain.
Keep in mind it will take commitment and focus on your part.
However, you no longer have an excuse to not do what needs to be done—as all you need to do to take control of your credit and financial life are only clicks away!
You can improve your credit and credit score if you truly and sincerely desire too! You now have access to the right information—to do just that!
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About This Article:
The above article was written by Thomas (TJ) Underwood. Thomas (TJ) Underwood is a former fee-only financial planner, a former top producing loan processor and is currently a licensed real estate broker in the state of Georgia.
He is the writer behind The Real Estate & Finance 360 Degrees Series of Books that include The Wealth Increaser, Home Buyer 411 The Smart Guide to Buying Your Home, Home Seller 411 The Smart Guide to Selling Your Home, and Managing & Improving Your Credit & Finances for this MILLENNIUM.
In addition he is also the writer who created The 3 Step Structured Approach to Managing Your Finances, and CREDIT & FINANCE IMPROVEMENT MADE EASY—NEW GUIDE that you can download right now "(at MIMIMAL cost $3.95)" to learn more about his writing style and how you can achieve "more" success in the current economy.
He is the creator of TheWealthIncreaser.com where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner.
He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future. He was the first financial planner to coin the phrase "financially alert mind" and he consistently writes in a style that is designed to provide consumers the ability to take control of their lives and achieve great results.
You can contact him from a number of sources but the most direct way is to contact him through the contact us block that can be found at the bottom of this page. You can also get highly relevant tips on "living your life more abundantly" and link to TheWealthIncreaser.com and possibly earn revenue by logging on to TheWealthIncreaser.com.
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