As a loan originator, you’re exposed to many different credit profiles. You’ve run the gamut, and you’ve seen the good, the bad, and the ugly. But nothing can compare to denying a mortgage to someone on the basis of their credit risk. Not only is it frustrating to lose business, but having to break the bad news to a mortgage applicant can be crushing.
The more you know about credit, the better prepared you’ll be to confront sticky situations like this. Here’s some quick tips that could help your applicants get on the right track, and reinforce your credit knowledge.
Pay off the right credit card first.
When paying down your credit cards, focus on the one with the highest interest rate. To effectively do this, you can use what’s called “the avalanche method”. Make the minimum monthly payments on the cards with the lower interest rates. With any leftover funds, try to begin paying down the card with the high interest rate. Once you’ve eliminated the debt on this first card, repeat this sequence for the rest of your cards.
Make some returns.
Maybe you changed your mind after the product shipped. Perhaps you bought more than you needed. If you used a credit card to make the purchase, making a return could help your score. This could help lower your credit utilization ratio (the amount of available credit you’re using). Once you decide you don’t need the item, make the return as soon as possible. The longer you wait, the longer your credit utilization stays high.
Make multiple payments.
The credit card company will report your account to the bureaus each month, but you don’t always know when that’ll be, so it’s good practice to always keep that balance low. And one way to do that is by making multiple payments per billing cycle. You can make your second payment on or near the actual due date.
Ask for a credit limit increase.
Your credit utilization makes up a huge portion of your score. If you’re managing your credit responsibly, you can always ask for a credit line increase. While paying your bills on time and keeping your balances low should be priority, this strategy could provide you with a quick boost. And if the credit issuer offers a credit limit increase, never turn it down.
Write a goodwill letter.
If you’re in relatively good credit standing and you’ve made a late payment that you think is going to hurt your scores, try writing a letter of goodwill to the creditor to get it removed. Different than a dispute, a goodwill letter acknowledges that you’ve made a mistake, and asks for forgiveness. Although they aren’t obligated to honor your request, the creditor will typically do so, as long as you’ve been responsible paying your bills on time.
For more responsible credit tips, check out our eBook, 25 Awesome Credit Tips for Loan Applicants.