Navigating the world of credit can be daunting for many. With various credit models, terms, and misconceptions, it can be fairly difficult for individuals, especially prospective homeowners, to understand and manage effectively. Hence, a comprehensive Q&A session took place between a seasoned loan officer, John, and a credit expert, Sue Buswell. In this blog post, we elaborate on the useful insights and credit advice drawn from this illuminating discussion.
Your Guide To All Things Credit
The discussion kicked off with John introducing the topic and expressing the importance of understanding credit in the financial planning process. He emphasized that credit is essential to successful homeownership, advanced financial planning, and wealth accumulation. John’s experience of 25 years in the industry has made him realize the immense amount of misconceptions, often labeled as ‘fake news,’ that surround credit. He expressed a strong desire to debunk these misconceptions by bringing clarity through this informative Q&A session.Â
Sue Buswell, a veteran in the credit industry with over 30 years of experience, was introduced as the expert to address these pressing issues. Sue, who also has extensive experience as a mortgage reseller and credit consultant, was eager to disseminate knowledge that would empower homeowners and optimize their financial planning strategies.Â
Understanding Credit Reports, FICO, and Vantage Score ModelsÂ
One of the main topics discussed was credit reports and the different score models, specifically the FICO and VantageScore models. Sue explained how these models have different requirements that play a key role in the creditworthiness of an individual. For instance, the FICO model requires six months of open and active history from the point of the credit pull. On the other hand, VantageScore requires only one month of history within the most recent 12 months.
Additionally, Sue highlighted the importance of credit restraint, especially for people new to credit. The principle of never charging more than what one can pay off in a single month was emphasized. This practice is important as future models will be considering this trended data.
Credit Invisibles and The Journey to HomeownershipÂ
A significant part of the conversation was devoted to ‘Credit Invisibles’, a term referring to individuals who are yet to establish their credit history. Sue explained how alternate credit data kinds help bring these invisible into the picture and grant access to credit. However, they play a major role in the newer FICO and VantageScore models but are not considered in the current FICO models used for mortgage lending.
The Impact of Bankruptcies and Debt Settlements on CreditÂ
The discussion then navigated towards individuals dealing with severe financial struggles and on the verge of bankruptcy. The implications of filing bankruptcy and debt settlements on credit scores were addressed. Sue reassured that recovery from bankruptcy or a debt settlement is possible.Â
It was further discussed how using debt settlement or filing bankruptcy can impact one’s credit report. If the debt settlement is chosen, it would result in a ‘settled for less than full balance’ comment on the individual’s credit report, which negatively affects the credit score.
The Role of Mortgage Advisor & Loan Officer
The Q&A took a broader perspective when discussing the role of a mortgage advisor or a loan officer. Pulling away from the ‘transactional loan officer’ model, both speakers stressed the importance of truly advising and guiding clients, helping them understand their credit, and developing personalized financial strategies.Â
This requires looking beyond a one-time transaction and seeing the broader picture of the client’s financial status. Whether a first-time home buyer, a real estate investor, or someone buying a larger home in a few years, personalized advice and guidance can make a substantial difference, creating opportunities for referrals and future business.
In Conclusion
Whether you’re a prospective homeowner or a seasoned one, managing your credit can significantly impact your overall wealth and homeownership experience. By understanding credit reports, the impact of different credit situations, and the guidance of a trusted loan advisor, you can navigate the sometimes confusing territory of credit with confidence. The insights provided by Sue Buswell in this Q&A give a head-start for anyone seeking to make informed financial decisions.
