How to Talk to Your Clients About their Credit Score
Due to the recent economy and simply the demands of life in general, almost nobody has a perfect credit score. A poor score can stand in the way of your client securing financing for a property, or affect the amount they would have to pay.
A credit score is simply an overview of a client’s financial history and current debt. A number (score) is assigned as a result of a variety of factors: payment history, amount of credit owed, types of credit established (loans, credit cards), the utilization of credit (how close your client is to the credit limit), and how much new debt they are taking on, among a few other factors. The score is meant to be unbiased and objective, to give a faster and fairer assessment.
Here are a few points you may want to review with a client regarding their credit score:
Find the weak link
Determine the areas that have mostly impacted the score, and work to improve them. It could be late payments, or too much debt taken on, or an unpaid loan, among other reasons.
Go over the report with a fine-tooth comb
Even credit scores can make mistakes. Make sure the client reviews every aspect of the report, and questions anything that may seem inaccurate or already solved.
The report is based on patterns
Emphasize that the score improves with regular payments (including no late payments), and the conservative use of credit. The report is usually based on recent behavior, so the sooner your client fixes any faults, the sooner the score will improve.
It’s not always “one size fits all”
Different lenders and financing institutions use different criteria to judge creditworthiness. Lenders use different types of score ranges for different reasons, so a “bad” score may not necessarily mean that your client is instantly out of the running.
Not all scoring models are alike
There are thousands of models that creditors use, which consider different variables. Each creditor views the information differently. If a creditor denies credit, they must state which items in the credit report influenced the decision. Click here to find out more.
Credit scores do not discriminate
The following does not influence your client’s credit score: race, color, religion, national origin, sex, marital status, employment, place of residence, or interest rate charged on a credit card or account. The score is calculated by a computer, using statistical scoring models.
Loan officers — not computers — make the loan decisions
Officers use credit scores to weigh the decision. Other factors could include income, length of employment, and the value of assets.
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