A: The customer had told us when we first talked that he thought his credit score was well over 700, and when we ran it, it came in at a 590.
A: Sure, we have a lot of customers who overestimate their credit score, but the reason this one stood out is they had all of the signs of a solid transaction – lots of credit depth, they were homeowners (actually owed two houses), had lots of cash flow, and just in general paid their bills on time.
A: The credit scoring models are finnicky at times. Often, a late payment on something right now can negate years of positive pay history. In this case, a bank error led to their payment being applied to the wrong account, and they were reporting 30 days late on two separate auto loans with the same institution. The only thing worse than being recently late is being currently late.
So, you have a customer who always pays his bills on time and for years has considered himself a 700+ credit guy reporting over 100 points lower than his norm. It was a big shocker.
A: Well, unfortunately, credit score is something we can’t look past completely. It’s always a factor. Thankfully, however, we have built a business on helping customers with non-traditional profiles. While we can’t outsmart their credit score, we can look at other factors to get around credit issues – especially when they don’t really represent the character of our applicant.
A: For starters, when we looked at their business credit history it was nearly flawless. This helped show that the late payments were incidental and not indicative of the quality of the customer. Then, we set the customer up with a small security deposit to help overcome any worries about risk or short-term cash flow. Lastly, we had them show proof they were current on the accounts now. Their bank even provided a letter promising to update their payment history. In the end, even though the credit score said 590 – we were able to show that our customer was a 700 guy.
A: Customers should always be acutely aware of their credit history – it’s way more important than just monitoring their score. Most consumer-driven scoring models like the ones offered for free across the web are NOT FICO scores, so they are not the same ones we as lenders use to evaluate credit. The big surprise isn’t that we might see a lower score than you do – it’s that the customer may not realize something is reporting late (whether correctly or incorrectly). Using a good monitoring service and accessing a credit report about four times a year helps safeguard against mistakes.
A: The Federal Trade Commission ran a study a few years ago that demonstrated 21% of customers had a mistake on their credit report. That’s about 40 million Americans, and what’s more, customers who apply for credit more than twice a year are about three times more likely to have a material error on their report. We find that business owners are much more active with their personal credit and tend to fall in that category more often than not.
A: He was able to get his new tow truck, and all is well. As much as I’m proud we were able to work with him, his willingness to work with us on putting a structure together that made sense for the underwriters was the most important ingredient in our successful outcome.
Next week we will check in with George Vandel in our Sioux Falls office. Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line