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 judgments on their credit file?” 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 per cent say they regularly see clients with adverse listings on their credit file.
Of course, there are adverse listings and adverse listings. If a client has a small value telco 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 first 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 first-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 like Pepper, La Trobe, Bluestone or Liberty (these are names I hear every day). 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 downside of using second-tier lenders is the high 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 judgments from credit files which allows the client to access finance with first-tier lenders at a saving of two per cent to more than five per cent in 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 four to six weeks, but it impacts the client for the life of their loan.
The broker refers a client who has been through a traumatic divorce in which the partner did not pay their share of all the joint financial agreements. This meant the client ended up with five defaults on their credit file, listed by AGL, ACM, American Express, Credit Corp and Telstra. The credit repair company removed all these listings from the credit file allowing the broker to write a loan with a first-tier lender.
Some professionals turn away credit-impaired clients because they simply do not think they can help. But in 83 per cent of cases I work on, the credit provider has not followed the consumer laws before placing the listing on the credit file. This means that the listings should not have been placed in the first place, yet the client has suffered five to seven years of not being able to get finance or of paying high interest rates. Credit repair companies therefore fight for your client’s right to a correct their credit report. It’s only fair isn’t it?
Dr Merrilyn Mansfield, lead adjudicator and researcher, Princeville Credit Advocates