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MLOs Will Add Value By Coaching The Borrower

Easily overlooked is the timing of making payments

Rob Chrisman
Rob Chrisman
MLOs Will Add Value

These days, it isn’t as if pipelines are full. Every potential borrower is precious to lenders and loan originators, who in turn want to “put their best foot forward” when it comes to the initial contact and commencing collecting the borrower’s information and processing the loan. Experienced originators will say that instructing the client how to “opt-out” of having credit activity be seen by others is the first step, but pulling the borrower’s credit to check on the numerical score is one of the first things mortgage lenders do. But what happens then?

Of course, the better the three-digit Fair Isaac number, the higher the chances of not only the loan being approved but also getting favorable terms. A trained LO will work with their valued client in improving their credit profile, starting by advising the client to be diligent about making on-time payments. A client’s on-time payment history is very important, and makes up about 35% of a person’s overall credit rating.

Easily overlooked is the timing of making those payments. Borrowers can find out when creditors report balances to the credit bureaus. A client who waits until the due date to pay off the balance may push recording that payment into the next month. This balance could negatively impact a borrower’s credit utilization or the total amount of credit someone is using divided by the total amount extended.

Longer-Term Game Plan

Most originators will tell a client to keep their credit utilization as low as possible, certainly under 30%, usually by paying down the balances. Or a client can ask for increased credit limits from the credit card issuers although confirm that the issuer, will conduct a soft credit inquiry when asked for an increase. MLOs know that a “hard” inquiry could have a negative impact on a client’s credit score.

MLOs will often tell clients to avoid closing credit card accounts during processing. Closing a credit card can have a direct impact on someone’s credit utilization ratio, reduce the length of credit history, and limit a client’s overall credit mix. Potential borrowers should not apply for other financial products, such as another credit card, car loan, phone plan, or home equity loan, as a “hard inquiry” can reduce a credit score by a few points.

A longer-term game plan for improving a future client’s credit is helping the borrower enroll in a credit-builder program to help a client with no credit or limited credit, and those trying to improve their credit scores. A lender agrees to lend a certain amount of money to the borrower, and the borrower decides how much and how often they want to make payments toward the loan. As the future borrower makes payments, the lender reports those payments to the credit bureaus, which can help boost their credit.

Someone with no credit can become an authorized user on someone else’s credit card. This is somewhat dicey, as the client must have a trusted friend, partner, or family member with a credit card account touting a high credit limit or solid history of on-time payments. This person must be willing to add the potential client. But if the primary user has a late or missed payment it will be added to both parties’ credit reports.

All of this can sound arduous and time-consuming to a new originator. But with practice, the rewards can be great. Not only that, but these items can once again prove that a human originator can add value by coaching a client through a complicated process, and have a home at the end of it.

This article was originally published in the Mortgage Banker Magazine May 2023 issue.
Rob Chrisman
Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 35 years ago. He is on the board of directors of Inheritance Funding Corporation, of Doorway Home Loans, of AXIS Appraisal Management, and of the California MBA. He is also a member of the Secure Settlements Advisory Board, an associate of the STRATMOR Group, and of the Mortgage Bankers Association of the Carolinas and its membership committee.

Published on
May 01, 2023
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