Part II. I get a lot of prospects who have bad credit because I work with first time buyers. I never know what tools to use to help them. Many times, I find myself getting too involved and it keeps me from bringing in new business. Do you have any advice?
--Juanita from Florida
Last week we spoke about rapid rescoring, credit simulators and loan officer advice. This week we will add two other options – credit renegotiations and credit repair. I cover these together because they are often confused. Quite often renegotiations are confused with repair, but in reality, they are two very different activities which address credit issues.
Debt negotiation: If you watch television, you will often see advertisement for credit debt negotiation companies. These ads focus upon credit card debt and say that their companies can negotiate the balances and payments on these debts – using fancier marketing terms, of course. But while these companies may be able to reduce the "official" debt load of someone, they will not advertise what this will do for a credit record. The writing off debt by lenders can have a drastically negative affect upon someone's credit record, including their score. The effect can be as dramatic as a bankruptcy or foreclosure, depending upon the scope of the debts in question. For some people, their debt load gives them no choice. But do not expect that they will be able to purchase a home anytime in the near future.
Credit Repair: Credit repair includes the process of the validation or correction of erroneous information on a credit report. Legitimate credit repair organizations apply their knowledge of consumer protection laws and credit reporting on behalf of consumers. Acting as advocates, they ensure the consumer’s credit file is 100% timely, accurate and verified. Credit repair may help someone remove information, but in order for the consumer to realize meaningful score improvement, they must show responsible use of positive credit over time. All of which is a process that takes time and consistent effort.
Unfortunately, credit repair has carried a negative stigma for several reasons. First, many bad actors make false promises advertising guaranteed score increases in a very short period of time. Also, there are companies that make claims that they can remove virtually any negative item, regardless of whether it is legitimate or accurate. Some companies resort to nefarious tactics like filing false police reports claiming identity theft, while others attempt to sell credit privacy numbers, or CPNs, as new Social Security numbers. Last, “jamming” is a tactic where the credit repair company repeatedly disputes the same report item in the attempt to falsely remove it from the credit report. These tactics are deceptive – and illegal.
With all of the above being a genuine concern, you should carefully choose the credit repair company you refer your clients to. As rates trend higher, refinance applications will fall and purchase business will take the forefront. Having a compliant, effective credit service provider should be a necessary part of every producing loan officer’s toolbox. Want to read more on this topic? Take a look at a recent article on compliantly using credit repair, published in the National Mortgage Professional by Chad Kusner, Credit Repair Resources President and NACSO Board Member, by clicking here.
Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published. His website is www.originationpro.com. If you have a reaction to this commentary or another question you would like answered in this column? Email Dave directly at [email protected]