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Checking Out "Credit Optimization"

As a business journalist, I certainly get my fair share of press releases and media pitches on an endless array of products and services. Usually they find their way into the circular file. So when I got a release this morning from a company called CreditXpert touting a new product the company developed that may double your chances of getting a home refinance loan or a new mortgage - - even if your credit is mediocre or worst -- I took a look. In doing so, I think this credit optimization thing may have some merit. What's that about? I'll let CreditXpert explain. "Credit optimization tools offer a viable alternative to crippling subprime mortgage payments. If borrowers facing unwieldy mortgage payments use credit optimization, two thirds of subprime borrowers can potentially refinance at conventional rates, avoiding a major cause of loan defaults. With whole neighborhoods of subprime borrowers likely to face loan workouts or foreclosures in the coming months, this strategy has strong potential for stemming the tide of sub prime mortgage foreclosures." If nothing else, CreditXpert certainly has good timing. With the ongoing credit crunch and the subsequent unwillingness by banks and lenders to loan money to people looking for a new home or to refinance on an existing loan, this credit optimization thing may warrant a closer look. Says CreditXpert: "Credit optimization will also become increasingly critical to new loan applicants. In an effort to reduce defaults, lenders are raising credit requirements. These tougher underwriting standards limit options for even the most creditworthy borrowers and force home buyers to rethink their purchase or refinancing options. Other challenges will hit those on the fringe between prime mortgages and subprime loans. Borrowers with a credit score under 620 are likely to feel the most pressure." According to CreditXpert, credit optimization can help 30 percent of declined applicants gain approval and 50 percent of applicants earn a better mortgage rate when included as part of the origination process. Of course, what the company claims and what it does is open to debate. But that's quite a claim. So how does it work? According to CreditXpert, consumers can use credit optimization technology to legitimately raise their credit scores. Similarly, a mortgage broker or loan officer can use credit optimization technology to help applicants legitimately raise their credit scores. It does so in two primary ways: -- Accuracy: Automatically scrutinize credit report data for potentially incorrect, missing and outdated information that may be hurting the credit score. -- Credit Behavior: Automatically identify the most cost-effective actions to achieve a score increase, such as paying down debt, transferring balances and opening accounts. Credit optimization software also uses credit simulation to test different scenarios (such as paying down a certain credit balance) to see how those actions will affect the credit score. The software also automatically scans every credit report and displays potential score improvement on the cover of the report. This way, the consumer, broker or lender only needs to perform credit optimization on files where there is an opportunity for improvement. I'm not saying go out and pick up the CreditXpert product. All I'm saying is a little research into credit optimization may be worth your while, especially if you can't get a loan in this increasingly tough home lending environment.
Published Aug 27 2007, 05:25 PM by moneycoach
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