Clients disadvantaged by going it alone
Brokers and clients disadvantaged by clients navigating the ‘minefield’ of credit reporting alone
22 November 2012
Brokers who don’t have contact with a reputable credit rating repairer to refer bad credit clients to, may be missing out on valuable commission through lost deals, and in some cases may also be doing their clients a disservice, says a leading credit rating repairer and advocate for credit reporting accuracy.
CEO of MyCRA Credit Rating Repairs, Graham Doessel says whilst many people whose credit history shows up with defaults have obtained that default justly, there are also many whose credit file contains errors and omissions and he says those people should be given the chance to clear their name.
“I would like to say it is as easy as calling the Creditor to sort out the mix-up, but in reality clearing bad credit is a minefield, and a credit rating repairer can be invaluable,” Mr Doessel says.
Generally when a client presents to a broker with bad credit they have two options:
(1) Send them packing to resolve the mix-up or to wait until the credit listing “falls off” their credit file in 5 or 7 years before they apply again.
(2) Organise a non-conforming loan at a higher interest rate to absorb the risk associated with lending to those with bad credit.
When faced with a credit rating error, Mr Doessel says the clients who are sent away may not always be able to resolve their credit reporting dispute themselves.
“Credit reporting is governed by mountains of legislation across different industries, so it is not always about right or wrong, but how the letter of the law applies in each case. We have seen many clients who are defaulted despite doing the right thing and despite working actively to try and resolve the situation themselves,” he says.
He says many brokers put credit repair in the “too hard” basket and prefer to steer their clients to the non-conforming market – at least for the first few years of the loan when they can then refinance.
“There are a couple of reasons why a non-conforming loan will not always be the best choice for the client. Firstly, they can lose thousands on interest even over the first three years, and secondly with the market the way it’s been more home owners are stuck, finding they can’t refinance due to lack of equity in the home,” he explains.
Mr Doessel wants to
help educate brokers and consumers alike on some of the
myths surrounding credit files:
1. Consumers always know they have bad credit before they apply for a loan.
can be many reasons for people not to know they have bad
credit until they apply for a loan. They may have moved,
been hospitalised, been an identity theft victim or even
been a victim of error with their creditor. If the client
was not notified prior to the default, in many instances the
listing has been placed on the credit file unlawfully, and
should be disputed.
2. Credit file listings are always correctly placed on credit files.
Credit reporting mistakes can and do happen –but most consumers are unable to recognise credit file errors. Some estimates point to as many as 34% of credit files containing errors or omissions. [i]
Credit reporting agency Veda Advantage recently
admitted about 1% of material errors detected by their
system alone.[ii] But many more may go undetected by credit
reporting agencies, creditors and consumers until it’s too
late and the consumer is refused a home loan.
3. Credit file complaints are easily disputed.
Some brokers assume
if the listing is there – the client must be deserving of
it. But in reality, once a listing has been placed on a
credit file, it is very difficult for individuals to have
removed. So even if the listing shouldn’t be there, most
often people are forced to put up with it. Often they are
told the listing can be marked as paid, but will not be
removed from the credit file.
4. If a Default or Clear-out is on the credit file it can never be removed prior to the end date.
Some brokers assume credit repair must be a ‘con’, as in their experience listings are never removed. In truth, unless the client can show why the listing was placed unlawfully on the credit file it will not be removed. It is up to the client (or the credit repairer acting on their behalf) to show reason as to why the listing was placed unlawfully, and negotiate its removal.
process of credit repair involves an audit-like
investigation of the entire case to determine, based on
legislation whether the credit listing was placed unlawfully
on the credit file. If this is determined, the credit
repairer will formally negotiate the removal of the listing
from the credit file on the client’s behalf.
5. A bad credit client should be steered to the non-conforming market.
If a broker considers duty of care to their client, and they believe the client should be able to obtain mainstream credit, except for bad credit history – then another step must be inserted in the process – deciding on the possible validity of the bad credit before providing non-conforming finance options to them.
“As a successful
broker in the non-conforming market for many years, with
many cases I was left scratching my head as to why these
perfectly suitable clients who had nothing wrong bar their
credit rating errors did not have other options than to
enter a loan at sky-high interest rates just to break in to
the property market. That is precisely why I founded a
credit repair business in the first place,” Mr Doessel
6. Credit repair is a waste of money.
If a potential borrower is able to have their unfair credit listing removed, they can reduce their interest charges by thousands just by entering a loan with a mainstream lender.
On a loan amount of $350,000, a borrower would pay $487.62 more in interest each month over the first three years in a non-conforming loan at 9% interest vs the standard variable rate of say 7%.
When we look at that in
total, the borrower would be up for a staggering $17,554.34
more just in interest alone over those first three
7. All credit repairers are the same
Consumers do need to be aware there are some agencies out there who are happy to take money, but don’t add enough benefit to be of value over what an individual could do themselves. People looking for a reputable credit repairer should ask plenty of questions, do their homework on the company, and request some testimonials from past clients before they commit.