Helping clients manage their credit scores can have wide ranging implications on their lives and their finances. High credit score make it possible for clients to potentially qualify for more favorable terms on mortgages and other forms of financing. Many employers check job applicants’ credit histories when conducting background checks so poor credit scores can negatively impact a client’s ability to change jobs and increase their income. Credit ratings can also influence insurance premiums and individuals’ applications for apartments. Additionally, prudently evaluating credit reports may also help reveal identity theft.
On top of potentially positively impacting investible assets, offering credit counseling services can be a differentiator for an advisor. It may help increase loyalty among an existing client base, which in turn can result in clients expanding their relationships with their advisors.
Credit counseling for complex issues, of course, may require credit specialists. In such cases, advisors can help their clients find credit counselors by turning to the U.S. Department of Justice, which maintains a list of approved agencies.
Investment advisors, nevertheless, can add value to their client relationships without becoming full-time credit specialists. Here are some simple things that advisors can do.
Recommend Clients Review Credit Reports
The Fair Credit Reporting Act required credit reporting bureaus to provide individuals with a free credit report annually. You can easily obtain a report here. The site provides access to three credit bureaus. Individuals should considering accessing one report every four months and scanning the documents for any incorrect information that may lower their credit ratings.
Dispute Incorrect Info
If inaccurate information is found, individuals should send certified letters to the credit reporting company to dispute the information. Many credit bureaus offer online forms for disputing information, but some of the forms require users to sign arbitration requirements that may limit their rights to take legal action.
Credit reporting companies are required to investigate the disputed information. If agencies fail to provide a sufficient remedy to inaccurate information, advisors and their clients may want to seek legal assistance. Attorneys that specialize in credit reporting bureau issues can be found through the National Association of Consumer Advocates’ website.
Pay Off Consumer Debt
High levels of credit card debt can adversely impact individuals’ credit reports. Advisors should help their clients develop budgets and schedules for paying off consumer debt. In the process, individuals should pay off debt on credit cards with the highest interest rate first (assuming timely payments have been made on all cards.)
Late Payments Are Better Than No Payments
Credit card users who miss a deadline for making a payment may decide to simply make an increased payment prior to their next deadline, rather than make a late payment. Doing so is a mistake because the action will be reported as a missed payment. In other words, a late payment is preferable to a missed payment.
Seek to Negotiate More Favorable Terms
If clients are struggling to pay down credit card debt, suggest they ask their credit card companies to provide more favorable terms, such as lower interest rates and a decrease in the amount of outstanding debt.
Credit card companies may agree to such terms if it keeps clients from defaulting on their payments. When clients default, credit card companies sell the debt to collection agencies at a discount, so credit card companies have an incentive to agree to make it easier for their clients to pay off the debt. Such negotiations, however, may best be done with assistance from credit counselors.
Scrutinize Debt Consolidation Services
Advisors should insist their clients seek help from credit counselors before turning to debt consolidation services.
Think Twice Before Paying Collection Agencies
Creditors who haven’t received payments for seven years have no legal recourse for pursing debtors. In some cases, debt collection agencies may contact debtors who are nearing the seven year threshold and ask for a token payment as an act of good faith. The ploy is usually a trick to reset the seven year clock.
