- Agents are often asked to help clients with credit problems, but they don't always offer the best solutions.
- Financial literacy is desperately needed.
- Real estate professionals need to steer clients toward resources such as the CFPB and FTC.
Many real estate agents often do not know where to send potential homebuyers who have negative credit histories or have defaulted on their previous mortgages. Although they can offer several options, these options might not adequately meet their clients’ needs. Let me explain.
Credit repair service
In situations like this, many agents sometimes suggest the services of companies that offer credit repair. Problems arise when an agent chooses this option because these companies are no strangers to violating the Fair Credit Reporting Act (FCRA) and the Federal Trade Commission (FTC) rules.
For example, armed with the many FCRA loopholes, the service floods the three credit-reporting agencies with dispute letters challenging the reporting and accuracy of all of the negative items listed on their clients’ reports, even though it knows that all of the items were accurately reported.
Credit repair attorney services bully creditors into removing accurately reported public records — such as a tax lien, bankruptcy, judgment or mortgage default — in small claims courts.
I am constantly asked by many agents to recommend a credit repair agency to help their clients. I am always at a loss for words. It’s like asking me to recommend a good brand of cigarette.
Heavily counting on lenders
Lenders are in the business of lending. Still, some agents leave resolving serious credit reporting errors and disputes to lenders. However, some lenders can provide certain assistance but with short-lived results.
Lenders avoid this conversation with the true belief that serious and responsible homeowners and homebuyers review their credit reports for any inaccuracies prior to completing a mortgage application.
I recently advised a credit-challenged business owner to apply for a secured credit card. I asked him to make sure that the new card account information was reported to all three CRAS. He visited and posed the question to three of the largest national bank managers, but failed to get an answer. They didn’t know!
Furthermore, a number of agents who deal with multiple lenders receive different answers to a basic credit questions. Financial literacy is desperately needed.
Credit counselors do offer consumers limited financial help, and some agents send their clients in that direction. This option is not really the best solution either because these nonprofit agencies are in the business of examining people’s expenses against their income and determining if a debt management plan can help them reduce or eliminate their debts.
This service does not necessarily include providing suitable credit education to help them improve their overall credit standing.
Surprisingly, even financial advisers, certified public accountants and divorce attorneys are sorely lacking when it comes to offering appropriate credit advice. They are not trained to help their clients understand what their credit profiles are all about.
Real estate agents should not send their buyers to these respected professionals if the goal is to help their buyers improve their credit scores.
What can we do?
Regrettably, our educational system barely addresses the subject of personal finance, and in particular, credit profile management. We grew up discovering for ourselves the real cost of credit, at times with a hefty price to pay.
Learning how to manage credit today is like learning how to drive by getting into accidents.
Today’s agent is compelled to learn how to read and assess many reports such as title reports, appraisal reports and home inspection reports, but very few agents learn how to properly read and put in plain words a tri-merged mortgage credit report.
No, we do not need to become experts in credit scoring. Instead, we need to seize the opportunity to offer direction on where to go for help.
Best of all, the knowledge is free. Our clients do not have to part with one penny to improve their credit scores. We are all entitled to receive one free report a year from each of the three major credit reporting agencies.
We should also encourage our clients to visit websites such as the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC) for truthful and useful information. And if they wish to learn about credit scores, FICO is the place to go. We can be assured that these entities will offer our clients all of the help they need. It’s totally free. Check it out for yourself!
As real estate professionals, we have a duty to ensure that our clients are as knowledgeable as possible if we are interested in increasing their lifetime value. In addition, it is the ethical thing to do.