Over a year ago, I had a conversation with an executive vice president of one of the largest secondary credit reporting agencies in the country. He was talking about the lack of quality assistance to help their clients improve their credit scores. He stated that loan officers too often talk a big game but offer very little in substance. He called their so-called credit optimization, "Gimmick programs."
There are four primary reasons why banks, credit unions, and loan officers struggle to provide real assistance with improving your credit scores. They are:
1. Conflict of Interest - Improving a borrower's credit scores could require paying off or refinancing their own existing loans. They do not want to let you know that by paying off their existing loans, your scores will go up. So, they would rather you keep the loans open, keep paying interest to them, and end up with a higher interest rate on your mortgage or auto loan.
2. Avoid Liability and Missed Business Opportunities - borrower's credit scores may decrease during the process you take to follow their suggestion. They would not chance it if your credit scores decline and you end up with a higher interest rate or payment. You would go elsewhere for business. It is better to not say anything even if your mortgage or auto loan rate is a ¼ to ½% higher on the new loan you are applying for.
3. Credit Scores are Complex - FICO® Scores include 30+ factors, but loan officers focus on only a few (e.g., payment history, utilization, inquiries). If any credit score improvement program does not address all 30+ factors, the credit score improvement will be limited. In most cases, the loan officer does not know. But they don’t want you to know that they lack a deep understanding about credit scores.
4. Hard Inquiries - Lenders pull your credit scores multiple times to check for progress. Frequent hard credit pulls lower scores - up to 6 points lower per credit check. Any suggestion they offer will require a new score check, and that will lower your scores from that action.
My Credit Plan is managed by Family Financial Education Foundation, a 501 (c)(3) credsit counseling agency. You can check your lender’s scores through My Credit Plan without a negative impact to your scores, and you will get an authenticreview of the actions you need to do to improve your scores in the coming days and weeks.