Refinancing scams are big news lately, and for good reason. If you are considering refinancing your home, I urge you to read this article in its entirety. It might save you tens of thousands of dollars in the long run.
I used to work for a major, US direct lender who specialized in home-loan refinancing. This corporation taught its loan representatives how to manipulate customers into agreeing to loans that were not in the borrower’s best interest. Although we were taught many methods of psychologically coercing customers into signing loan documents, this article will only discuss one of those methods.
Before I discuss this tactic, you should realize that when a lender evaluates your loan application, they are primarily looking at three things:
1) FICO Score
2) Mortgage-related late payments
3) Bankruptcies
Credit-card payment history, car-payment history, student loans, collections, charge-offs, and pretty much any type of credit problem that is not directly related to a mortgage is irrelevant to getting your loan approved. Why are these credit issues irrelevant? Because that is what the FICO score represents. Your FICO score is a numerical value that takes into consideration all of these factors and lumps them into a number that will range from 500 to 800+.
Mortgage-related late payments will typically increase your interest rate. Bankruptcies will also increase your interest rate or (depending upon the lender) make you “un-lendable”.
Here is the tactic that you should be aware of:
Your loan officer may want to talk with you about your credit history. He or she will ask you specific questions regarding credit-card late payments or otherwise non-mortgage related issues on your credit report. Your loan officer will ask that you explain yourself and provide a valid reason why you were late on those payments.
How is this manipulative?
For starters, those credit issues are irrelevant to your loan approval. Your loan officer should not be discussing them. By asking about your credit history and requesting an explanation, your loan officer is accomplishing three things:
1) Making you feel insecure about your credit history so that you will be less likely to request a quote from another lender
2) Forcing you to “open up” about your personal life, which will help develop a stronger relationship between the two of you
3) Make you feel more appreciative of the loan that your loan officer offers you
The more battered your credit history, the more ammunition a ruthless loan officer will have to use against you and try to manipulate you into accepting a loan that is not in your best interest.
Remember, the majority of loan officers know exactly what type of loan you are approved for the moment they pull your credit. There is absolutely no need for them to delve into your past.
If you experience this type of tactic from your loan officer, I strongly suggest you find a more reputable company to work with.
By: Christian Rios
Posts Tagged ‘Fico Score’
Refinance Scams – Shady Loan Officer Tactics – Part 1
November 25th, 2009Your FICO Score And Your Refinance Loans
November 8th, 2009
You may have heard of a FICO score, but if it didn’t relate to any of your favorite sports, forgotten all about it. But if you have ever taken out a formal loan, you have your very own FICO credit score, which will let future lenders know how much of a risk they will be taking by lending money to you. A low score will label you as a high-risk borrower, and if you have one and want to refinance your home, you can expect to be hit with a high interest rate.
But you can take matters into your own hands when it comes to raising your credit score. If you wait to apply for refinance loans until it is improved, you will save a considerable amount of money over the life of your refinance loan. How can you begin the process of lifting your FICO credit score and lowering your refinance loan rates?
The Fair Isaac Corporation is the mysterious entity behind the FICO anagram, and the company actually responsible for assigning your score. They base your score on all the details of your credit history, and then assign a numerical score representing your creditworthiness.
How Your FICO Score Is Assigned
Fair Isaac gets your credit information form the three major credit reporting bureaus, Experian, Trans Union, and Equifax. They will assign you three different scores because the information form each of the credit bureaus will be slightly different. The first thing you should do before applying for a refinance loan is get copies of three of your credit reports and scores. An error in any one of your reports could lead to an unjustified lowering of your score, and you should take the steps to repair the damage.
Your credit scores will also reflect the amount of time you have been a debtor, how much of your existing credit lines you have used, and whether any of your accounts have been turned over to collection agencies or written off.
If you uncover any errors in any of your credit reports, you should immediately send a separate letter for each of the mistakes to the credit bureau/s involved, and include documentation to support your complaint. The credit agencies will review your information, and if they agree that there are mistakes, will correct your reports and adjust your scores. Cleaning up your credit reports is essential before applying for your refinancing.
Other FICO Score Raising Options
There are other things you can do to raise your Fair Isaac and Co(FICO) scores, but they will take some time. You can begin immediately to make your bill payments on time; you can cut back on your credit card use; and you can pay off and close as many accounts as possible. The most important of these suggestions is to begin paying your bills on time, because 35% of your FICO score is calculated from your payment history.
You should try to pay down as much as you on any credit cards which are approaching their limits, because that will also make a significant improvement in your FICO score. It may take six months or longer for all the changes in your bill handling to be reflected with a better score, so don’t start until you are ready to see the effort through.
By: Jonathan Andrew