By Dr Merrilyn Mansfield, Lead Adjudicator and Researcher for credit repair firm, Princeville Credit Advocates
I’m on the phone to finance experts every day – brokers, accountants, bankers, financial planners, wealth creators and fund managers. The question I ask every time is: “What you do with clients who have defaults or County Court judgments on their credit report?” It’s a certain conversation starter.
Very few finance professionals say that they never see the problem – but there are some very lucky people out there who only get highly qualified leads so that credit impairment is non-existent. Most people I speak to say they get one or two credit impaired prospects per year, and about 15-20 percent say they regularly see clients with adverse listings on their credit report.
Of course, there are adverse listings and adverse listings. If a client has a small value telecommunication or energy default and a good story from the client about how they got the listing, then the broker can often still place the loan with a top tier lender. Job done. All good.
If the client has a trickier listing – say with a bank or for a larger default amount – then a top tier lender is probably not going to approve a loan so it’s better not to put in an application. Even if the client has a brilliant excuse for their problem.
Finance experts who have clients with trickier listings often suggest that the client use a second-tier lender. The benefit of sending the client to these lenders is that the prospect often has ‘the dream property’ in mind and wants to get the deal done. But the downsides of using second-tier or bad credit lenders are the higher application fees and the ongoing higher interest rates which may create financial stress for the client down the track.
There is an alternative to sending the client to a second-tier lender at this point.
The finance specialist can instead refer the client for credit repair. Credit repair is the process of removing defaults and County Court judgments from credit reports which gives the client an opportunity to access finance with top tier lenders at lower interest rates, saving the client thousands over the life of a loan.
The finance professional and client need to have a future-focused view about the financial health of the client and take into consideration the savings in interest payments. The average time of credit repair is six to eight weeks, but it impacts the client for the life of their loan.
Case study
A broker refers a client who has one default, two County Court judgments and several late payment markers on their credit report. The client had suffered a health problem which led to a temporary reduction in income and ultimately to the adverse listings on his credit report.
The credit repair company removed these listings thereby allowing the broker to write a loan with a top tier lender at a much lower interest rate.
Some professionals turn away credit-impaired clients because they simply do not think they can help. But in many cases I work on, the credit provider has not followed the consumer laws before placing the listing on the credit report. This means that the listings should not have been placed in the first place, yet the client has suffered six years of not being able to get finance or of paying higher interest rates.
Some finance experts ask whether paying a credit repair company to fix a credit report is necessary. There is a somewhat persistent view that consumers can sort out their own credit report issues with credit providers or with credit reporting agencies – and if that does not work they can take their case to one of the Ombudsman services for free so they can sort it out. So, they ask, why pay for credit repair services?
There are two very good reasons to pay for credit repair services. The first is that consumers generally do not have a handle on all the consumer laws that relate to credit reporting and their rights in relation to these laws. Credit repair companies have made it their business to understand the consumer laws and your client’s rights in relation to these laws and to make complaints based on adherence to these laws.
The second is that while the Ombudsman services are an excellent help to credit repair companies if a credit provider resists removing an adverse listing it is important to remember that they do not specialise in preparing complaints on behalf of consumers. The Ombudsman services do not conduct the deep research that credit repair companies do in order to make a complaint about an adverse listing on a credit report.
Therefore, your client is less likely to be able to remove an adverse listing by themselves or via making a case to the Ombudsman when compared to having a credit repair company prepare a complaint on your client’s behalf.
Have opinions on the use of Credit Repair? Comment using the form below.