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How to Boost Credit Scores

Tools for credit improvement

December 8, 2006


Several tools are available to help originators pinpoint what loan prospects can do to improve their credit rating.

Prospective borrowers are best off if they've already taken steps to improve their credit prior to stepping into a mortgage shop, starting with monitoring their credit report to know what their score is and correct any inaccuracies their files may contain

Three major credit reporting agencies -- Equifax, Experian and TransUnion -- each report their own credit scores based on running consumer information they each have on file through the scoring formula of Fair Isaac Corp. The scores incorporate credit history, amount of credit available and used, number of late and on-time payments, and whether any payments due are in default.

"Different creditors use different factors to rate overall credit worthiness," said Andrew Housser, Bills.com co-chief executive, in an announcement. "Basically, it comes down to whether you pay, and pay on time, and whether creditors have reason to believe you might be overextending yourself."

FICO scores below 680 usually result in a borrower being charged a higher interest rate or denied credit, according to myfico.com. FICO scores range from 300 to 850, with the median U.S. credit score being about 723.

Using recent national rates, myfico.com determined that a borrower with a FICO score of 760 or better will pay $225 less per month for a $216,000 30-year fixed-rate mortgage than a person with a FICO score of 620.

Paying bills on time for as little as one month can raise a modest credit score by 20 points, according to Bills.com, which is an online consumer education service. Refraining from opening new accounts six months ahead of applying for a mortgage, avoiding charging credit cards to the limit, as well as making substantial charges one to two months before requesting a loan, are other steps consumers can take to help their credit rating.

Once mortgage prospects visit a shop, however, tools such as those from CreditXpert and Market Kinetix LLC can highlight which factors are affecting a credit score and how they can be changed.

Through CreditXpert, one originator was able to raise a woman's credit score to 520 from 465 to qualify her for a loan with a lower mortgage payment and take equity out of her home, CreditXpert told MortgageDaily.com in an e-mail statement.

The initial score was too low to get the woman out of a mortgage that had adjusted to over 11 percent and had a payment increase of more than $300. CreditXpert enabled the originator to learn the woman's credit score could be raised enough for her to qualify for a loan by paying off a credit card account in full, paying off another collection account and making all other payments on time for one month. Through these steps, the improved score qualified her for a loan with a 2 percent savings on the rate and $175 savings on the mortgage payment.

The two-component software solution reportedly first analyzes a credit file and checks whether there are dollars available to improve the relationship between the balance and the credit limit, and provides a step-by-step recipe for originators that generates the most positive score change based upon the amount of dollars that are available. The second component lets originators know exactly by how much a credit score can improve if a certain derogatory or incorrect item is removed from a credit file.

Market Kinetix LLC recently launched Deal Maker, an analysis tool that allows loan originators to help borrowers reach the target credit score through a customized action plan.

When a borrower's credit score is below the recommended minimum, Deal Maker uses a mortgage action plan "to breakdown the process into simple directions," Ron Litt, Market Kinetix spokesman, told MortgageDaily.com. "The is the only tool that I have seen that tells the loan officer exactly what to do to get a client into a loan.

"This tool helps the originator work with borrowers to bring their credit scores up so they can get into a loan," Litt added. "It tells the loan officer exactly how much the credit score needs to be raised in order to be approved for a loan. If you give us your credit score, then we will tell you how to get there."

A cash calculator that shows the borrower's available cash to get the biggest results by reducing balances or paying off accounts can be viewed within a mortgage action plan.

"It takes less than a minute for a credit score to be brought up," Litt said. "There is a preliminary plan that is available for free and then customers can purchase a file for $18 if they feel they need to."

"It takes less than a minute for a credit score to be brought up," Litt said. "There is a preliminary plan that is available for free and then customers can purchase a file for $18 if they feel they need to."

Each level of action and its reaction can be viewed through a three-step process. A point system shows points awarded for every action to raise the credit score to the desired number.

"The first step is known as the Immediate Steps and this is used when the credit score only needs to be raised 30 to 40 points," Litt added. "The Shorten Steps take 15 to 45 days to improve credit score. Lastly, Long Term Steps can take up to 60 days or more, but can raise a borrower's credit score to up to 60 points."

Rachael Robertson is a freelance reporter for MortgageDaily.com.

e-mail: [email protected]

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