Rethink Everything About Credit Education
Mortgage experts have provided credit education content that next generation loan officers can use to attract and nurture consumers and future homebuyers.
Marching Into Credit Education Month: Leveraging Financial Education to Create Informed Customers
Brian Vieaux, President & COO, FinLocker
Tips For Helping Borrowers Improve Credit Scores
Jeffrey Walker, CEO and Co-Founder, CredEvolv
8 Tips to Build Credit History and Improve Your Credit Score
Sue Buswell, Credit and Score Consultant #sueknowsthescore
2 Ways to Use the Credit System to our Benefit
Jeremy Potter, President of titleLOOK
Managing Credit Health with Homeownership In Mind
Rob Chrane, CEO & Founder of Down Payment Resource
The Fastest Way to Impact your Credit Score
Steve Ely, CEO of eCredable
Show the Score (and keep scoring points with your audience)
Dan Smokoska, Founder of WinSocial
Rebuilding Your Credit Following Late Payments
Sue Buswell, Credit and Score Consultant #sueknowsthescore
View all previous articles
Marching Into Credit Education Month: Leveraging Financial Education to Create Informed Customers
Brian Vieaux, President & COO, FinLocker
Now that it’s March, we find ourselves in Credit Education Month – an opportune time to explore the strategic advantages of early consumer engagement through financial education.
People of all ages can benefit from a better understanding of credit. Knowing the current status of their credit health and if they have specific financial goals and objectives in the future, how does their current credit impact their ability to achieve those financial goals?
Why does early engagement matter for loan officers like you? It’s simple – financial education is the key to financial success. When you lead with financial education, you’re not just building a pipeline but creating a community of well-informed future customers. By positioning yourself as a trusted financial advisor, you stand to attract individuals who are not only seeking financial assistance but are also receptive to learning.
There are numerous tools and services that can provide consumers with their credit scores and credit reports. Free credit reports are available through annualcreditreport.com, and many banks and credit unions offer their customers their credit scores. There are also apps like Credit Karma and Credit Sesame to help people understand and learn their credit metrics.
There is, however, only one tool that combines education and tools with a path to homeownership. Loan officers have the opportunity to up their game with their own tool: a personally branded FinLocker app that can be used to attract new customers while keeping them actively engaged with prospective customers. Consumers will not only be provided with their credit score and TransUnion credit report, but they’ll also see the status of the five primary factors that impact their credit score. They’ll also be able to use interactive tools and access resources to learn how to improve their credit score. The importance of this tool is that it sends the consumer credit alerts and encouraging credit status updates on behalf of the loan officer to provide a long-term educating relationship that’s based on consumer empowerment.
Let’s use March to attract consumers with credit education but elevate the discourse beyond terminologies and explanations to build connections. Become the trusted advisor who not only imparts knowledge but aids individuals in comprehending their financial positioning and empowers them to take control of their credit health to achieve their short-term and long-term financial goals and objectives.
Tips For Helping Borrowers Improve Credit Scores
Jeff Walker, CEO of CredEvolv
Your consumer is shopping for a home, but her credit score is below your qualifying floor. This is not unusual – according to Home Mortgage Disclosure Act data, 15% of mortgage applications for new homes were denied in a recent year. That percentage balloons to 34% when you include applications for home improvement loans, interest-rate reduction loans, and cash-out refinance loans.
There are two primary reasons borrowers don’t qualify based on credit – they have poor credit, or they have insufficient credit. And while there are certainly reputable services for helping consumers address credit challenges, consumers can also take steps on their own.
Poor credit score
Credit scores help lenders gauge ability and willingness to pay back debts on time. A low score may indicate that your borrower had trouble making debt payments on time and managing other debts, and that they may be less likely to make future mortgage payments on time.
Tips for helping borrowers increase their credit score:
• Encourage her to make timely payments on all lines of credit. On-time payments are the most significant contributor to a good credit score.
• Keep the balance on credit cards below 30% of the available limit. How much debt she has compared to her total available credit is another major factor that impacts the credit score: the lower the outstanding balances, the better the credit score.
• She should check her credit report and dispute any errors. Incorrect or fraudulent credit accounts on a report can decrease her score. By disputing errors, any associated credit score reductions would be removed.
• Recently Fannie Mae and Freddie Mac have begun allowing consumers to build credit through rent reporting. Encourage renters to inquire with their landlord about how they can take advantage of rent reporting to build credit.
Insufficient credit
Having limited credit history also has its challenges. Younger, first-time homebuyers or those with minimal or no credit history are most likely to come up against this issue. Lenders want to have a good idea of how they manage their money which is why you want to see a proven history of paying off debts.
How to establish a credit history
• Making consecutive on-time payments is the most straightforward way a borrower can improve her score.
• She might ask a spouse or relative with good, established credit to add them as an authorized user on a credit card. The positive history from the primary account owner will be reflected on her credit profile, which in turn, will help lengthen her credit history.
• Make sure she is listed as a borrower on any student loans or car loans she has. On-time payments of these types of accounts is another great way to build credit.
8 Tips to Build Credit History and Improve Your Credit Scores
Sue Buswell, Credit and Score Consultant #sueknowsthescore
Building good credit is a gradual process that involves responsible financial behavior. Here’s a guide to help you start on your credit journey, incorporating Credit Union credit building accounts, authorized users, and additional tips:
It’s difficult to get credit when you don’t have credit, so follow some of these #skts tips to get started on your journey.
1. Open a Basic Checking Account:
Start by opening a basic checking or savings account at a Credit Union. Credit unions often offer favorable terms for members, and some may have specific products designed to help you build credit.
💪 Pro-Tip – sueknowsthescore chose credit unions over other financial institutions for 3 reasons:
• You earn money on your money in the form dividends
• You have access to a variety of account options with no fees attached
• You become an owner in a Credit Union vs a customer of other financial institutions – they are not for profit so you earn those dividends.
2. Explore Credit Union Credit Builder Loans:
Many credit unions offer credit builder loans. These are small loans that are designed to help you establish or improve your credit history. Payments are reported to the credit bureaus, helping you build a positive credit history.
3. Become an Authorized User:
Ask your parents or a close relative if you can become an authorized user on one of their credit cards. As an authorized user, you can benefit from their positive credit history, potentially giving your credit score a boost.
💪 Pro-Tip – Ensure whomever you are asking for this has a good payment history – authorized user accounts report their history, so if they get behind, it will negatively affect you.
Ensure the creditor reports on you as the authorized user. Most major credit card issuers and some department store card will report on the authorized user. Call and ask.
If you are applying for a home loan, the authorized user account will be discounted and may be requested to be removed from your credit report if you are not financially responsible for the payment.
4. Apply for a Secured Credit Card:
A secured credit card requires a cash deposit as collateral, making it easier to qualify for if you have limited or no credit history. Use the secured card responsibly, making on-time payments, to build positive credit history.
💪 Pro-Tip – NEVER charge more on this card than you can pay every month. Remember, you put $250 or whatever amount of your own money as collateral for a $500 or higher limit.
If you are unable to pay your full balance at the end of the month, you are paying the card company interest ON YOUR OWN MONEY.
5. Check Your Credit Report:
Obtain a copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion). You are entitled to one free report from each bureau annually through AnnualCreditReport.com. Refer to the How to Check your credit report guide for tips.
6. Make Timely Payments:
Always pay your bills on time. Payment history is a significant factor in your credit score, responsible for at least 35%. Set up reminders or automatic payments to ensure you never miss a due date.
7. Keep Credit Card Balances Low:
Try to keep your credit card balances well below your credit limit. High credit card utilization can negatively impact your credit score. Aim to use no more than 30% of your available credit. If you’re just building your credit your balance to limit should likely be 10-20%.
8. Monitor Your Credit Score:
Keep a close eye on your credit score and report regularly. Many credit card companies and Credit Unions offer free access to your credit score. Monitoring your credit allows you to catch any errors and track your progress.
Remember, building good credit takes time, so be patient and consistent in your efforts. Regularly reassess your financial habits and adjust them to support your credit-building goals.
2 Ways to Use the Credit System to our Benefit
Jeremy Potter, President of titleLOOK
One of the most effective financial products has been the 401(K). Despite being funds for retirement, the financial planning industry was able to hook into a distribution network (employers) at a critical moment (payroll). For sure, the help from Congress as a tax-advantaged plan made a big difference, especially in the timing portion for new employees setting up payroll. It is undeniable, though, that the confluence of factors makes 401(K) much more effective, especially from an adoption perspective, than other types of financial planning.
Using adoption (aka engagement) as the goal, let’s look at credit history, including FICO score, through the same lens. Most companies reporting payments (like lenders) are also distribution points for products or services that impact credit scores. The key is timing. We know it can be difficult to get credit without obtaining entry credit-related products. This is not dissimilar from applying for jobs that require experience but being unable to get experience.
Credit and banking on-ramps are critical to building credit and becoming preapproved. Two groups that struggle with on-ramps are historically underserved communities and young people without access to credit-building products. Underserved and unbanked individuals have a difficult time establishing and building credit either because they are operating outside a standard checking and savings account or have a bank account but are unable to qualify for entry-level credit products like a low-limit credit card. Young renters may have an entry-level job but do not have the spending or payment history to build up a traditional FICO score.
FICO and other credit scoring companies, like VantageScore, have begun incorporating other data sources in an effort to try to better serve these populations. Those are not distribution points, though, for the products that will ultimately establish and improve credit. To do that, new products or new ways of reporting existing payment types are required.
Here are two examples of companies working on this issue. MoCaFi, a black-owned fintech platform, provides cash assistance management, mobile banking, credit reporting for rent, and financial literacy tools. MoCaFi can issue a physical or digital card, load a prepaid debit card with funds, accept deposits at retail point-of-sale terminals to build savings and report payments for credit history. MoCaFi partners with cities and municipalities, as well, for social services and assistance. Finally, MoCaFi’s Blueprint program allows cardholders to set goals and stay on track to save for a down payment.
MoCaFi is a potential tool for young people, long-time renters, or anyone who inquires about homeownership but does not have the financial accounts or records to sustain a mortgage application. If you work in a major metro area, there is a good chance MoCaFi has a city card or presence nearby. Check the website for the exact local partnerships.
Another example of a product built to help a specific group of people with their credit needs is Bilt Rewards. Bilt Card is a Mastercard eligible to be used for rent payments in addition to any other typical purchase you choose to make on a credit card. Bilt provides 2 critical benefits. First, on-time rent payments are reported as positive payment history for inclusion in the consumer’s VantageScore or FICO score.
Second, Bilt offers rewards similar to other credit card rewards programs, like cash, that can be put toward a down payment or used for travel or other experiences. Ultimately Bilt leverages the credit system to benefit renters who want to become homeowners. If you work with renters looking to buy in the next 12 months or more, Bilt Rewards might be a great perk for them as you work with them to accomplish the savings and FICO score required by most lenders to qualify for a mortgage.
There are plenty of other great products and companies out there looking to serve specific types of young or underserved markets. MoCaFi and Bilt Card address two sides of the credit markets, both addressing similar issues and getting their customers on a path to greater access to credit, including ultimately a home of their own.
Managing Credit Health with Homeownership In Mind
Rob Chrane, CEO & Founder of Down Payment Resource
Major life events such as marriage or job changes can indeed have significant impacts on a credit profile, and it’s important for aspiring homebuyers to know the facts. By providing comprehensive credit education and actionable advice, loan officers can empower consumers to make informed financial decisions and improve their credit health.
Loan officers will often find themselves counseling clients on more than just mortgages. Newlyweds, for example, should know the ramifications of combining finances and how to manage joint accounts responsibly. Although marriage doesn’t automatically merge credit histories, joint accounts and financial activities can affect both partners’ credit scores in the long run.
Or, how about recent graduates making their way into the job market? You may find yourself advising consumers to be mindful of how job changes, such as a change in income or employment status, can affect their ability to manage debt and maintain good credit. Maybe they’re okay with renting for now but relying on credit cards while searching for employment and building up debt could have a negative impact on their DTI ratio, which would affect future homebuying decisions.
And, with down payment help available in every state across the country, saving for the down payment may need to take a back seat to protecting credit health. Learning about down payment assistance programs and requirements in your market can help make you a trusted advisor for those homebuyers who are sidelining themselves due to a lack of down payment funds or misinformation about what is required.
Owning a home has been shown to be one of the most effective ways Americans can build generational wealth, and if managed well, homeownership can help to improve credit overtime. By understanding how major life events can impact credit and taking proactive steps to manage these transitions, consumers can navigate these changes with confidence and protect their homeownership goals by maintaining a healthy credit profile.
The Fastest Way to Impact your Credit Score
Steve Ely, CEO of eCredable.com
We get this question every day from the thousands of people that we help build better credit scores. The answer depends on who asks the question and the state of their current credit reports. Let’s consider three different situations.
1) I don’t have a credit score – there are only three ways you are in this situation: a) you just turned 18, b) you just moved to this country, and you have no history, or c) your credit history has gone stale, and the credit score you are trying to create needs more current payment history. This is easy to solve for by just adding more information to your credit report. If you’re new to credit, it’s as simple as using eCredable Lift and reporting your cell phone, power bill, or internet bill to TransUnion. Almost overnight you can get a credit score. If you’re credit report has gone stale, just use one of those credit cards you tucked away for a rainy day. You don’t have to carry a balance and pay interest. You just have to use the card and make a payment.
2) I just started building credit – this is another opportunity to use eCredable Lift to add more accounts to your credit report. The advantage you get with eCredable Lift is the ability to include up to 24 months of history with accounts like cell phone, internet, power, and water.
3) I’m rebuilding my credit – if you ran into financial issues and did something to damage your credit, you need some time to rebuild your credit history. If you have a bankruptcy, you might need a long time (as much as 10 years) which sounds like an eternity. The trick is to remove as much negative history as possible (like collections) and add as much positive history as possible (like accounts that are current).
Focus on the things that have the greatest impact on your credit score. Payment History (do you pay your bills on time) and Credit Utilization (are you using less than 30% of your revolving credit) have the greatest impact, so focus on those items first.
Show the Score (and keep scoring points with your audience)
Dan Smokoska, Founder of WinSocial
Credit scores play a big role in the loan approval process. You know that. But you know who probably doesn’t?
Potential borrowers (at least not to the level they probably should).
You have incredible insights into a part of the mortgage process that your audience needs, and your audience is searching for it. That means you’ve found the perfect recipe for creating valuable content that can make a real difference to people.
That’s how you start building trust and start being seen as a reliable source of information — which is also how you start building relationships with people.
So, how can you get this educational information out to the people who need it most (so they’ll call you when they’re ready to secure a home loan)?
Here are a few tactics and ideas for you to use how you see fit:
- Make Your Points, Help Others Win: Video is how people prefer to learn and gain new information these days. That’s why you should start posting videos about why credit scores matter, explain the different levels of scores that would be needed for certain loans, and showcase why you’re the person that can give them the information they need when they need it. Credit Education Month is a great reason to start.
- Send and Score: Don’t ignore the leads in your CRM. Maybe they’re just leads because they don’t know they can qualify for a home loan with their credit score right now. Create an email campaign that takes your leads on a credit score journey that might help them realize they may be able to get into a home right now.
- Gain Credit With Your Followers: When someone is getting serious about buying a home, they’re jumping on social media to find the best loan officer to work with. So make sure when they find you, you’ve got the information on your platform to help them. Create a social media campaign where you give insights into credit scores a couple of times per month. One could be about the different credit score levels, another could be an infographic on tips to improve credit scores. You know it all… give the people what they want 🙂
People may not always be excited to hear about credit scores, but when they hear information that could help them improve their score or get them a home loan, that energy changes quickly. Start changing that energy for potential buyers today!
Rebuilding Your Credit Following Late Payments
Sue Buswell, Credit and Score Consultant #sueknowsthescore
The time it takes to improve your credit score after a late payment can vary based on several factors, including the severity of the late payment, your overall credit history, and your financial behavior following the late payment. Here are some general guidelines:
30-Day Late Payment: If you’ve missed a payment by 30 days, the late payment will typically be reported to the credit bureaus. While it will have an impact on your credit score, the effect may not be extremely severe.
If the late payment was the result of mail delivery delay, or other circumstances out of your control, call your creditor and ask for a Courtesy Deletion. This is a one-time only option typically and will not be provided if you’ve been historically late with your payments.
A single late payment may not cause a significant decrease, but it will lower your score.
To avoid such issues, set up auto payments with your creditors to ensure a solid pay history.
60-90 Day Late Payment: If the late payment is more severe, such as being 60 or 90 days overdue, the negative impact on your credit score will be more significant. It can take several months of consistent on-time payments to start seeing improvement.
Late payments are weighed by the score by recency, severity and frequency.
A single 60 day late will impact your credit score more than a single 30 day late.
Recovery Period: In general, late payments can remain on your credit report for seven years. However, their impact on your credit score tends to diminish over time, especially if you continue to make on-time payments and demonstrate responsible financial behavior.
That same 60 day late from 2 years ago will have little impact, but one that just happened? That can cause a score drop of 30 or more points.
Credit Utilization: If your late payment was associated with a credit card, reducing your credit card balances can also positively impact your credit score. Credit utilization, or the ratio of your credit card balances to your credit limits, is a crucial factor in your credit score.
When trying to recover from late history, having other items of concern in your file will keep your score low.
35% of your FICO mortgage score is your payment history, so if you have delinquencies, you can help your score by getting and keeping your balances at 20% or less of your credit limit.
Important – paying your revolving debt off is not recommended – it can often result in a lower score, so work with the ratio that fits your credit profile.
Establishing Positive Credit History: Building a positive credit history with a consistent pattern of on-time payments and responsible credit use can help offset the negative impact of a late payment over time.
It’s important to note that every individual’s credit situation is unique, and the exact timeline for improvement can vary.
If you’re working on improving your credit score, patience is key. Consistently making on-time payments and practicing good credit habits will contribute to the gradual improvement of your credit score over time.