Why Credit is King

By Derrick Carson

When it comes to obtaining a mortgage, credit is everything. There are some loan programs out there that check only your credit score and job status. And now with what's going on in the lending world, with many sub prime lenders are shutting their doors, the guidelines for loans are getting even tighter. Where preciously a 620 score was considered sufficient to get a loan, now the baseline has risen to 640 and higher to get into a program with a low payment.

To hel you get a better handle on the hows and whys of credit scores, let’s take a look at the credit bureaus and credit scores in general. By and large, there is confusion and misconception when it comes to the credit bureaus Most consumers think that the credit bureaus are owned and operated by the government, which is 100% false. Trans Union, Equifax and Experion are all owned by the same parent company, and not by the government. These are multi billion dollar conglomerates charged with providing credit reporting services to businesses both large and small. Think about how many businesses pull your credit to see if you qualify for any kind of credit: credit cards, auto loans, bank loans, etc. Just about everything you do that requires credit is funneled through these three companies.

For example, it costs on average $8.00 just to pull a report from one of these entities so image how much it costs to pull from all three. (about $24.00 dollars on average) And as they advertise on tv, “what's your middle score?” You see, that's what they use to qualify you for virtually all credit. At one time not so long ago when it came to mortgages and other home loan products, all that mattered was your payment history on your existing home loan.

I don't see how this is a fair system, since we are taught as consumers to shop for the best deal. But the problem is that if you do this when shopping for a mortgage, the first thing they do is pull your credit score, which lowers your credit score each time this happens. And the credit system looks at this just as if you were refused. That's the reasoning behind lowering your score. According to the industry, the credit system ratings they use its not suppose to let inquiries count against you, but it does. It seems to me as if the deck has been stack against home buyers and homeowners. The bottom line is that this is how lenders profit from your misfortunes. And they justify it by saying, “I’m sorry, but your credit score is to low for that program. However, we can get you into another program.” You’ll soon find that this generally means higher payments and more of your hard earn money in their pocket.

With all that is happening with lenders shutting their doors and wall street investors losing billions of dollars in foreclosures and mortgage notes, you would think that some sort of relief would be just around the corner. But this is not the case. You see, instead of taking it out on the greedy lenders and loan officers who wrote the high-risk loans in the first place, the industry is instead taking it out on the consumer. We as consumers are forced to suffer higher payments & interest rates. So it’s more important than ever that you know how to play the credit score game and play it to win.
If you know how the game is played, you can do something about it. Let me start by giving you an example: I had a client that paid his bills on time and had over one hundred thousand dollars in credit card debt. His score was 580, which is horrible in the lending industry. I had him consolidate all his debts and educated him on how the credit system works. Within three short months his middle score was 720, which is most definitely in the money. now think about this. He paid on time every month, he never missed a payment, but his score was 580, which meant his loan options were extremely limited. On top of that, his payments were super high for the first three months. After all was said and done I had him refinance again at no cost to him except the appraisal and got his payment back down into prime rates, which is where he belonged in the first place.

Now since guide lines have been tightened, its tougher to get a loan using these same tactics. Remember the lending business works by the golden rule; He who has the gold makes the rules. Its their money and they don't have to lend it to you. However, if you heed my warnings, you can make the choice easier for both you and them. .Below are credit scores and how they rate your creditworthiness.

1) 680 and up is considered good credit (680 is the average homeowners credit score in the nation)

2) 660 to 679 is fair which means you are cut out of a lot of prime programs

3) 640 to 659 is ok but you wind up being cut out of even more programs unless you want high payments.

4) 620 to 639 is less than deal, but you can still get a decent deal as long as you can prove everything on paper and have not had some other credit-relatedproblems in the past that caused slow payments on bills. At this level your life is under the microscope.

5) 619 to 600 you can still get 100% financing, but they will clobber you on the payment. This is where you want to do some credit repair before you apply.

6) below 600 YOU NEED CREDIT REPAIR IF YOU DON’T WANT TO BE FORCED TO REFINANCE EVERY COUPLE OF YEARS.

NOTE: There are ways legal to repair your credit. This is called the fair credit act. Legally nobody is allowed to put derogatory remarks on your credit without the credit bureau giving you a 30 day window to dispute the facts. In reality they don't follow this policy, because lenders are in the game to make money, not spend money. The fines are so minimal that its just cheaper to pay them. Remember, this is a multi-billion dollar per year industry. And like any other business, the first order of business is to cut overhead and raise profits. Is it fair to consumers? Not even close, but what can you do about it?

What I can offer in way of defense is to educate you, so at least you’ll have better odds of coming out ahead of the eight ball when playing the mortgage game. Call me toll-free at (866) 323-7603 and I’ll not only provide you with effective tactics, I’ll also show you how to get a copy of your credit report free of charge.