No industry focuses on credit scores quite like the mortgage industry. Seems like there are dozens of systems and programs out there that will help originators work with those buyers that need to improve their credit score so they can buy a house. This is a very populated area of the industry. Many “experts” support the effort to tap into this part of the market. I am NOT one of them.
While it is likely that there are programs out there that will help improve scores and you can certainly help council these people through that process; but one thing stands out more than any other fact; it isn’t worth it. Yes, I said it, it isn’t worth it. The math doesn’t support it and there are thousands of cases to prove it. Most people fail to follow the steps to improve their scores, and if they do, very few keep them up. If they do improve and they do keep their scores up, they are also likely to have required a great deal of time and energy, and maybe even go on to use a different person than the one who directed them through the process. Not to mention, that you can’t charge them anything extra for all the help and the extra effort it took to get them to the closing table.
The other argument I want to make is that the biggest factor in the whole “mortgage meltdown” was the urgent need by the government to grow the number of people who could qualify to borrow money to buy a home. And since those with good credit already could qualify to borrow money to buy a home, it became necessary to expand the criteria and lower the level of quality borrowers to take this money. The rest was history.
Let’s look at some numbers. Historically about 60 to 65% of the people in this country have owned the property in which they lived. When you take a minute to look at some very interesting data, you will see why I think it is a complete waste of time to work with the “credit challenged” borrowers for anything more than to share with them some very basic information and allow them to move on. Here is why. According to the three main credit reporting agencies, between 63 and 68% of the people in this country have credit scores 650 or higher. In fact, between 50 and 55% have scores higher than 700, and between 37 and 42% have scores higher than 750!
So the question to be answered is, if 60 to 65% of our population is likely to own their own home, and between 60 and 68% of the population already have credit scores high enough to qualify for a loan; why are some many people spending so much time and money working to attract those who don’t?
There are likely many more people who have credit scores over 800 (depending on the agency, the number is 15 to 21%) than those people currently below 650 who will ever improve their scores to qualify for a loan. The entire pool of people below 650 is between 32 and 37%, how many of those do you think will ever improve enough to qualify?
My point here is a simple one. Spend your time working with people who already can qualify from a credit standpoint. If you want to cultivate a niche market, why not go after the people who already have scores over 800? Far fewer people are marketing to those people. There aren’t thousands of websites and links for people looking for the best of the best as there are for those who are “challenged” or “need repair” of some kind.
In my opinion, you would be much better served marketing to 800+ people than you ever will be, trying to help those who are below 650. Credit scores are important. I understand they are not perfect. I know some bad things happen to “good” people that drove their scores down. But the facts remain, most of the people have low scores because they don’t manage their credit or are over extended. The facts also show that the average credit scores in this country are going UP as more and more people pay attention to their scores and understand the value of a good score. It is going to be quite a while longer before any of the agencies begin to relax their credit standards. Is that really such a bad thing? If everyone knows the rules is it a bad thing to demand that people who want to borrow money show an ability to repay the loan? Would those people who want to complain the most about the higher underwriting standards be willing to invest their retirement money, or their children’s college funds into loans going to finance people with low credit scores?
At the end of the day, this post is about sharing thoughts and ideas. Please share yours with us. For more information please visit us at http://www.improvemytomorrowcoaching.com.