HousingWire recently spoke with Mike Darne, vice president of marketing at CreditXpert, about credit optimization and how taking a closer look at consumer credit can benefit borrowers.
HousingWire: You have advocated for giving consumer credit another look. Why is this important now?
Mike Darne: In good times when qualified mortgage borrowers are plentiful, most originators don’t give a suboptimal credit score a second glance. But when every loan matters, like the market we find ourselves in today, it makes a lot of sense to take a closer look at the borrower’s credit score.
A glance at the headlines will tell you that more industry leaders are beginning to take the borrower’s credit seriously. It’s why regulators are spending so much time considering changes and why more originators are stepping up to help their loan applicants increase their scores.
HW: As a data science company, you’ve been looking at consumer credit. Why shouldn’t lenders assume that this metric is fixed?
MD: In our work over the past 20 years, virtually all of which has been aimed at making housing more accessible and affordable to more people, we have found that the borrower’s credit score is the only aspect of the deal that can change within the timeframe it takes to originate the loan.
And we know from the millions of credit scores we analyze each year that the chances that any individual mortgage applicant could raise their score by at least one 20-point bucket is just over 70%. That means that credit optimization can benefit nearly every mortgage applicant.
HW: You’ve spoken of credit optimization. What’s really happening there?
MD: Credit optimization leverages sophisticated predictive analytics to consider the elements that, taken together, result in the consumer’s credit history. This includes payment history, credit usage, credit account age, total number of accounts, hard inquiries and derogatory marks, such as late payments, collections, bankruptcies, civil judgments, foreclosures and liens.
The approach we take at CreditXpert is to allow our predictive analytics engine to run hundreds, and sometimes thousands, of simulations to model and predict the impact of very specific changes on the borrower’s score.
HW: How much of an impact can credit optimization have on the mortgage process?
MD: By strategically paying down credit card debt and either opening or closing an account, an applicant’s credit score can increase by as much as two 20-point credit bands in about 30 days. And with credit card interest rates currently hovering at 24.46%, strategically paying down credit card debt is a sound financial strategy that will allow borrowers to “win twice.”
HW: Why will this benefit consumers and win the lender their trust?
MD: They will win by reducing interest payments on revolving debt and they will win by accessing better loan programs or securing a lower mortgage interest rate.
But as borrowers learn about the power of credit optimization and originators continue to work through this downturn, we are seeing increasingly broader application of CreditXpert’s predictive tools.