Unlocking the Power of Credit LenderSelect Mortgage Group Unlocking the Power of Credit

The Importance of Credit Lenders, insurers, service providers and even employers use credit information to gauge if they are dealing with someone that is reliable and responsible. Qualification is dependent on credit scoring. Higher credit scores result in lower interest rates, potentially saving thousands of dollars over the life of the loan! Lower interest rates can translate into more home for the buyer.

Credit Statistics Credit scores range between 300 – 850 Credit Score Ratings Very Poor Below 580 Poor 580 - 619 Fair 620 - 679 Good 680 - 720 Excellent Above 720

Percent of U.S. Population Credit Statistics Average credit score in the U.S. is 695 as of April 2015. FICO© Scores Percent of U.S. Population 300-499 4.9% 500-549 7.6% 550-599 9.4% 600-649 10.3% 650-699 13.0% 700-749 16.6% 750-799 18.2% 800-850 19.9%

Credit Report Accuracy In 2012 the Federal Trade Commission (FTC) conducted a national study of credit report accuracy of 1,001 consumers. 26% of credit reports contained at least 1 error serious enough to result in a higher credit risk tier or the denial of credit. 49% of disputed credit errors resulted in a change to their credit score. 20% of disputed credit errors resulted in a credit score increase significant enough to have lowered the consumer’s interest rates on financing. Source: Report to Congress under Section 319 of the Fair and Accurate Credit Transactions Act of 2003 (December 2012) (“2012 FTC 319 Study”) (“Follow-Up Study”)

The 5 Factors of Credit Scoring Payment History (35%) Outstanding Balances (30%) Credit History (15%) Credit Type (10%) Inquiries (10%)

1. Payment History – 35% Impact (297 pts) Paying debt on time has the greatest positive impact on your credit score. Late payments, collections, judgments and charge-offs all have a negative impact. One 30-day late can cost you a 30-75 point decrease in your score. Missing a high payment will have a more severe impact than missing a low payment. Delinquencies that have occurred in the last 2 years carry more weight than older items.

2. Outstanding Balances – 30% Impact (255 pts) This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep each credit card balance below 30% of the available credit limit. Outstanding balances that are higher than the credit limit have a very negative impact on the score.

3. Credit History – 15% Impact (128 pts) This portion of the credit score indicates the length of time since a particular credit line was established. A seasoned borrower will always be stronger in this area.

4. Credit Type – 10% Impact (85 pts) A mix of auto loans, student loans, credit cards and mortgages are more positive than a concentration of only 1 type of debt. Lenders often want to review a consumer’s usage of credit cards specifically. This gives an indication of whether the consumer uses credit conservatively, when given the opportunity.

5. Inquiries – 10% Impact (85 pts) This percentage of the credit score quantifies the number of inquiries made on a consumer’s credit within a 6 month period. Each hard inquiry can cost between 2 - 25 points on a credit score.

Increasing Credit Scores Pay down balances on credit cards to be 30% or lower of the credit limit. Redistribute balances among credit cards to be 30% or lower of the credit limit. NEVER close out credit cards when you pay them off. Increase limits on credit cards, but don’t increase the outstanding balance. Open a new credit card to establish credit history (only if needed). Get added as an Authorized User on a seasoned credit card with a low balance and a high limit. Make sure there are no late payments on this account.

Increasing Credit Scores DON’T pay off old collections unless specifically advised to do so by a lender. If/when you need to: Negotiate collection payoffs at 50% of amount owned, but insist that if you pay the collection, it will be REMOVED from your credit report. Use a restrictive endorsement verbiage on the back of the check you write to pay the collection. Pay off any and all judgments. Inquire with the creditor when changes will be reflected on the credit report.

Credit Rescoring LSMG is one of the few lenders that accepts rescored credit! Credit Analyzers and What-If Simulators are available on credit reports pulled through LSMG. This gives detailed directions on how to potentially increase a score: Amount of cash needed per account Potential impact to the score Timeframe Once a consumer confirms that these actions have been taken and that the creditor has reported the new information to the credit bureaus, LSMG will request the rescore.

unlock the power of credit? How can LSMG help you and your borrowers unlock the power of credit?