For those looking to help consumers increase their credit scores through correcting legitimate errors in their files, one needs to be careful not to use the word "improvement."
This is because even with a correction, improvement is not guaranteed, explained Greg Holmes, national director of sales and marketing for Credit Plus Inc., Salisbury, Md.
The terms credit repair and credit restoration have taken on a bad connotation. People have legitimate reasons to have their score analyzed and have errors corrected. Many creditors are not good at reporting items in a timely manner, he pointed out.
However, those on the less-ethical side of the spectrum take advantage of a loophole in federal law. They will contest legitimate tradelines in the hope that if the repository does not respond within a 30-day time frame, the line is removed and thus the score is raised.
That is only a temporary raise, as the tradeline is quickly restored to the file.
Another method to boost scores, adding authorized users onto a credit card account of an unrelated person, is seeing less use as the latest algorithms to determine credit scores no longer take them into account, Holmes said.
There are more originators who are legitimately looking to assist their clients and guide them in the proper way to increase their credit score. He noted that 30% of the loans denied because of credit score could have the consumer do things to fix their credit profile and become approved.
Credit Plus has the Lending Hand suite of products for originators to aid consumers in the process.
Lending Hand Express is a road map given to the mortgage originator to communicate to a consumer on how to improve their credit.
The Lending Hand product allows Credit Plus to follow-up with the consumer to make sure that they are following the game plan and once they are there it notifies the mortgage company that the consumer is ready. Credit Plus assists the consumer on behalf of the mortgage company with this product.
Using Lending Hand, 83% of those who were denied for credit reasons only, in less than 45 days and under $1,000 out of pocket, were able to become ready to be approved for a loan, Holmes said.
These join the ScoreWizard product, which lets users run "what if" scenarios to see the impact of a tradeline change on the credit score.
One of the reasons for the increased interest in these types of products was the recently expired first-time homebuyer tax credit, he said.
Now, with the low interest rate environment, consumers are looking to refinance; however lenders and the secondary market have tightened their credit requirements.
Speaking of the secondary market, Credit Plus has introduced Credit Radar, which is a predictive tool, forecasting where the consumer's middle score is likely to be in 30 days. This enables the lender to be aware of any potential problems at closing.
The secondary market wants to know that in the pool of loans it is buying, that the borrowers' credit scores are trending up rather than trending down.
Fannie Mae's Loan Quality Initiative encourages lenders to repull credit right before closing. This means originators are going to have to educate borrowers, especially those on the border of qualifying, about making any large purchases (such as furniture), prior to closing.
"There is large portion of business out there that could be closed that is below 620, that can be closed if they use the right tool," he said. A big part of that is educating the consumer to change his or her behavior.
It is common sense items like paying down revolving debt and paying bills on time that improves credit scores, Holmes said.
"Consumer education is going to be paramount moving forward for originators because now they have got to protect their investment of time with the consumer," otherwise days or even hours before closing they could lose the loan because of new credit issues, he said.
