How To Counsel Clients with Low Credit Scores

February 24, 2017

It’s never fun to have to tell a client that their credit scores are too low to qualify to buy a home, or to buy the home they want. We enter this business to help people achieve the American dream of home ownership, and it can feel just awful to relay the news that it’s not going to happen just yet.

When this happens, and it happens to all of us sooner or later, it can be a great opportunity offer some advice, and build a strong relationship with a future home buyer at the same time. Here are some ideas for where this conversation can go once you’ve discussed their credit situation.

Start with the Disclaimer
You are most likely not a credit repair expert, financial planner, tax professional, or CPA. Be sure that your client understands your role, and what information you are, and aren’t qualified to give. Still – you are keenly familiar with credit scoring and how it works, have probably seen many people in their situation in the past, and are in a position to point them towards some great resources.

Be Reassuring
Some clients may be upset or even embarrassed to hear that their credit scores are low. This is a great time to mention how common this is, and that you have seen many people in their situation in the past. Even some highly successful individuals have credit issues due to prior financial actions. Encourage your client to focus on the opportunity to improve their credit. With some work home ownership may very well be in their future!

It Can Take Time
It’s important to make it clear that there are rarely super quick fixes. Some exceptions can be when the credit scores are just a few points below where they need to be, or if there are correctable mistakes on the report, but in general it takes some time to rebuild credit. By remaining patient and resolute it’s possible to see big changes!

Offer a Credit Overview
Without offering guarantees or promises that a score will improve by a specific amount, it can be helpful to go over the basics of how credit scores work.

  1. Suggest they start by reviewing the report for accuracy. Maybe there is an account listed that’s not theirs, or the outstanding balance on a particular debt is wrong. Correcting mistakes can have a big impact.
  2. Discuss the importance of paying every single bill on time every single month. There are a lot of misconceptions out there about credit, and some people just don’t realize how crucial this is. Sometimes the thought is that the only penalty for a delayed payment is the late fee, or that mortgage and credit card payments are important but it doesn’t matter so much for the cell phone, electric, and water bills. If there’s one thing to focus on, it’s getting all payments in before they’re due. Payment reminders or automatic payments can help if this has been something your clients have struggled with in the past.
  3. Talk about how high amounts of outstanding debt, particularly when close to credit limits, can impact scores. If buying a home is a priority it might be worth sacrificing spending in some other area to work to pay down existing debt balances.
  4. Mention that new credit accounts can have a negative effect. It may make sense to hold off on opening a new credit account such as a credit card, car loan, or account at a furniture, electronics, or appliance store.

Provide Resources
Point your clients in the right direction to continue learning, and taking steps to improve their credit.

  • A reputable credit counselor

Keep In Touch
Don’t assume that your clients with credit issues will call as soon as their scores have improved to the point that they would likely qualify for a home loan. In fact, they might not even be aware that they’ve reached that goal. Stay in communication over time to keep up to date on how things are going, and help them remember you are available to help them with that home purchase when the time comes.

Photography by [Yeexin Richelle] ©

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