Several months ago, I highlighted My Credit Plan’s blog the biggest mistake most homebuyers make. This mistake costs many homebuyers thousands of dollars. You can click on this blog here:
There is another – the second biggest mistake - that most homebuyers make. It is just as prevalent and costly as the first one. It is following incorrect advice from those (mainly loan officers) that really do not know how to fully assist you. It is often innocent. But it is your money and don’t you want to fight for a lower monthly mortgage or auto loan payment? This hidden, but substantial problem costs many homebuyers thousands of dollars.
That mistake to follow the advice of a loan officer in determining the best route to improve your FICO scores is extensive and unnecessarily costs billions of dollars each year. If consumers only knew! HOW PROBLEMATIC IS THIS PROBLEM? IT IS REALLY BAD.
How do I know? I see this from many transactions, their test licensing results and questions all loan officers answer. Let me explain.
Loan officers are trying to close loans – NOW. They don’t want to have you divert your attention from getting the loan closed. They want to get paid and go onto the next one. You may say, “My loan officer is nice.” Or “My loan officer will always protect me.” Or “My loan officer knows credit and would guide me to improve my scores.”
You think? Consumers don’t know because they don’t know what to ask, and there are many incorrect assumptions.
Several years ago, we were reviewing the test results as a committee from the mortgage licensing exam. This exam is required for mortgage loan officers. We were reviewing simple questions about credit, and credit scores. We were stunned. There are four answers to each question and the pass rate of these questions were 18%, 22%, 26%, 31%, 42%, and a few others. If one guessed amongst the four answers, they should pass at 25%. The testing company wanted to remove the credit questions because they were preforming so poorly. To the committee’s credit, they were kept in the mortgage test.
The average pass rate was 32% for these credit questions. That says a lot about loan officers and understanding credit scores. But yet, there is more.
The Problem for You
In many mortgage loans, a few points (like 3, 7, or even 10 FICO Score points higher) can save you $60, $75, or even over $100 a month on your mortgage. It’s true. Are you interested? Loan officers are not helping you to get the best rate and terms, they want to get your loan closed, so they can get paid. Plus, they REALLY don’t know how to maximize your FICO Scores AND THEY DON’T WANT YOU TO KNOW. They will tell you that a past client raised their scores 15 points form following a suggestion of the loan officers. Unfortunately, that same client could have raised his FICO Scores 40 points if he was given all of the information.
THIS IS A BIG PROBLEM.
Loan officers don’t want you to know that they do not know how to maximize or even your FICO Scores. They could tell you the moon is green, but you have no one there to compare their information with knowledgeable answers to make sure what they are telling you is correct. For example, ask ten loan officers the same credit score question and you get ten entirely different answers. Loan officers are just don’t have the expertise to help you and this costs you lots of money.
But MY Loan Officer is Different
I hear this one all the time. “My loan officer knows about credit scores!” I see these loan officers in court as “so-called” credit experts. I have not seen one make it with any credibility. They absolutely get run over from an aggressive attorney. They end up costing their clients.
Need additional insight, we did a survey of loan officers and asked them the following questions:
A mortgage (credit report request) inquiry is different than a regular hard inquiry that both lower credit scores. A home buyer can have his / her credit report pulled by multiple mortgage lenders within how many days in order to have all mortgage inquiries count as only one hard inquiry with the (mortgage) Classic FICO® credit scores?
- 7 Days
- 14 Days
- 30 Days
- 45 Days
The correct answer is 14 days. 17% of loan officers got it right. 53% of loan officers told their clients incorrectly “30 Days”, while 23% of loan officers told their clients 7 days, again incorrect.
Here is another question;
A potential homebuyer increases his / her (mortgage) Classic FICO® credit scores from 679 to 680, Applying for a 5% down 30-year fixed-rate conventional mortgage, how much by percentage from that one point change in credit score (possibly impacting interest rate and monthly mortgage insurance), can that improve the homebuyer’s purchasing power?
- No difference
- 1.7% Increase
- 5.1% Increase
- 7.7% Increase
The correct answer is 7.7% increase by just that one point improvement in a FICO Score. 20% of mortgage loan officers got it correct. 17% of the loan officers incorrectly answered “No difference”, 27% were wrong saying only a 1.7% increase, and 37% of loan officers were incorrect saying aa 5.1% increase.
What Is This Telling Us?
If you think your loan officer knows it, ask them these two questions. Then ask them how many determining factors (weighing factors) that go into the Classic FICO Score (used by most lenders). There are up to 35. If they don’t know these questions, don’t utilize them for your credit questions. They just don’t know.
This is precisely why My Credit Plan is so important. It identifies the accurate information with FICO Scores and identifies what you need to improve your FICO Scores. Don’t put your money on the line with guesses, get the truth. Find out many more solutions to score improvement through My Credit Plan than one or two suggestions from a loan officer.