As a direct mortgage lender dedicated to helping my real estate investment clients build wealth, I have a unique vantage of the counter-intuitive nature of credit scoring and reporting. Often, individuals with higher net worth don’t leverage their assets in a way that optimizes their credit scores.
For example, you’d think a client sitting on $400,000 in home equity, about to sell his house in this hot market and move to a condo in preparation for retirement, would be a underwriting dream. You’d think, if you were a logical person, that his careful management of his money would net him very best interest rates available.
Yet time and again, my team sees clients who have done “all the right things” but don’t get the benefits of the highest credit scores, which means they would leave money on the table by paying a higher interest rates.
Proactive intervention can save these people tens of thousands of dollars in interest over the life of a loan. So it’s important to talk to your mortgage lender the moment the notion to buy, sell or refinance occurs to you. With the right team in your corner, you can leverage your “right moves” to reflect in your score.
Reasons for Lower Scores in HNWIs
Let’s take my guy “Sam” for example. He’s a big Dave Ramsey fan, so he’s dutifully paid off his high-interest, revolving credit cards and closed most of the accounts. Plus he saved up to buy a used Ford F-150, cash. The one credit card he keeps open, he makes sure to pay off in full every month, no matter how high the balance.
In other words, he’s admirably managing himself and his assets by most accounts….unless you’re a lender looking at the weighted FICO score that adds up differently in the alternate universe of credit scores.
The Alternate Universe of Credit Scores
The difference in interest between someone with a “good” score of 700 and an “excellent” score above 760 can be hundreds of dollars a month in interest and thousands per year. There are actually different types of credit scores used for different scenarios, such as revolving credit, auto, and home loans.
For home loans, this is the weighted mix of the FICO score:
By this standard, Sam doesn’t look as good as he is, at least on paper:
Sam’s Solutions & Considerations:
Cash may be king, but credit score is Queen when it comes to great rates. Proactive review of your credit score by a mortgage specialist is a great way to prepare to make a move, whether you’re trading up or right-sizing for retirement.
Everyone, not just young folks starting out, can benefit from these general credit tips, plus a well-vetted review when it’s time to make a move.
Don’t let “good habits” prevent you from qualifying for the best rates. Know the score on your Credit.
Please feel free to access our Free Guides on this and other topics to help investors at our website: http://www.michiganhomeloansolutions.com/guides