Anyone who’s in the mortgage business knows that the halcyon days of an easy refi boom driven by historically low rates is probably over, which means that credit score will be more important than ever in getting a borrower approved for the right loan product. But even if you pull their credit and they fall short by 5, 10, or even 25 points to qualify for the desired loan, there are still ways to salvage the file by giving their credit score a quick boost.
Score factors:
When looking at a borrower’s credit report, look past the numbers alone and focus on score factors. You’ll find them from all three credit agencies on the tri-merge credit report, and the great part is that they’re listed in descending order in regards to the negative impact on a borrower’s score, allowing you to prioritize what needs help the most.
The most common score factors you’ll see include payment history, ratio of balance to credit limits, level of delinquency, time since delinquency, and lack of recent revolving account information.
Let’s address three of the most prevalent score factors that weight on a borrower’s FICO, with specific tactics how to remedy them for the most efficient score increase.
Payment history
Your record of paying everything on time accounts for about 35% of your credit score. Even with just one late payment showing up, your score can drop anywhere from 80-100 points typically. So removing a late payment from your credit history will increase your score accordingly, but it takes more than just paying it off to erase the late payment or collection from your report completely.
Strategy #1 Pay for deletion
If you’ve missed enough payments to have an account in collections, they’ll often agree to erase any negative credit reporting for that account if you pay it off in full. Only pay the collection via a mailed certified check, with “Cash only if you will delete account from credit report” written above the endorsem*nt line. You’ll probably have to make a lump sum payment, but then make sure you get their promise in writing via a letter of deletion. You can use that letter for a rapid rescore instead of waiting 30 days, a tool that is available to most mortgage lenders.
Strategy #2 Goodwill late-payment removal
Creditors have the power to remove a late payment from your credit report. They may do just that if you can make a good case that it was a one-time incident because you didn’t receive the bill on time, an address, change, etc. and that you otherwise have a perfect record with them.
Department store credit accounts and other retail accounts are usually pretty liberal with goodwill late-payment removals. Once the payment is removed, get a payment history update letter from the creditor, and utilize a rapid rescore or just wait 30 days for the credit score to increase naturally.
Strategy #3 Removing authorized-user accounts
Check closely to see if your borrower is an authorized user on someone else’s credit account. If that credit line has a late payment or other negative item reporting, then it’s dragging the wrong person’s credit score down. But the good news is that it’s easy for the borrower to remove themselves from the credit account. They usually only need to call the credit card company or bank and request that they are taken off the card, as well as the account deleted from their credit report, removing the negative reporting item and bolstering their score.
Strategy #4: Removing federal liens
Federal liens remain on consumer credit reports even after the lie is paid off and released, which keeps dropping the score. But if their federal lien comes from the Internal Revenue Service (IRS), your borrower is in luck. The IRS has a program that allows them to withdrawal the lien and remove it completely from the consumer’s credit report if it’s paid.
Even better, the IRS will now remove their lien from your credit report even if you still owe a balance under $25,000, as long as the taxpayer is making monthly payments as promised.
For any federal lien removal with the IRS, just call them to get the forms you need to apply for a lien withdrawal request. However, it does usually take the IRS 60 days to process lien withdrawals, at which time you’ll be issued a lien-withdrawal letter that you can get to the credit bureaus or use for a rapid rescore.
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Contact us if you’d like help increasing a borrower’s credit score in short order, or stay tuned for the remaining 6 strategies!
