Although we are a hard money lender and do not rely exclusively on credit for our loan decisions (we are an asset lender focusing on the property), we do pull credit on every borrower to verify identity, etc… There are three important recent changes that have impacted credit scores and lending decisions. These changes are flowing through the various credit models (fico, etc..) and impacting credit scores. The three items are Trended credit, Credit utilization, and credit inquiries. How does this impact you and your credit score? What simple steps should you take to improve your score?
As most know, credit scores are not just for actual loans. They are used by insurance companies to gauge risk, employers, etc… The higher the score, the lower rates you will get for loans, auto insurance, etc… . This sounds counterintuitive, but credit right or wrong is used by many businesses other than lenders to see how “risky” of a borrower you are.
3 major impacts to credit scores in 2018.
- Trended credit:
- Trended credit was implemented fully last year and provides data not just if you are current on your revolving lines (think credit cards) but also your payment history on each line. “In the credit industry, this new data is a game-changer,” says credit expert John Ulzheimer, who has worked for credit scorer FICO and credit bureau Equifax. “For lenders, it tells a much richer story about your relationship with your credit cards than what has traditionally been on your credit report. For consumers, it means how you manage your credit card accounts may determine whether you get a loan and what terms you’ll get.”
- According to credit agencies the trended data does not directly impact your score, but many lenders are using their own internal models to factor this data into their lending decisions
- Here is a more in depth article on trended credit and what you should do: https://www.fairviewlending.com/blog/trended-credit-are-you-ready/
- Credit utilization:
- Credit utilization is basically what percentage of your available credit you are using. This is a major factor in your credit score, since if your utilization is high you are deemed riskier. I know this first hand as one of my credit cards increased my limit and shortly after with no other changes my score went up since my utilization went down. Even though nothing changed in regard to my spending
- Credit inquiries / Number of pulls
- The number of credit inquiries can adversely affect your credit. If you are out shopping for a loan, in a short window, multiple inquiries will have little impact, but if you continue the shopping for a longer period of time your credit score will go down due to the number of inquiries.
- Credit agencies feel that if someone has a lot of “hard” inquiries on their credit that they are riskier borrowers and therefore credit scores are reduced to compensate for this riskiness.
It is imperative that you pull you credit to see how you are doing on the three factors above (note you can get free credit reports from each agency annually). Once you review your reports, take steps to ensure you are maximizing your score. For example, decrease your utilization, pay more than the min on credit cards, and reduce the number of “hard” pulls when you are shopping for credit. These simple steps will not only raise your score, but also reduce your expenses in the form of lower payments on insurance, etc…
I need your help!
Don’t worry, I’m not asking you to wire money to your long-lost cousin that is going to give you a million dollars if you just send them your bank account! I do need your help though, please like and share our articles it would be greatly appreciated.
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).