As brokers we are continually faced with meeting clients whose credit report lets them down. These clients stack up financially on all levels…until that last minute credit check reveals they have an adverse listing on their credit file.
Many brokers who come across clients with a bad credit rating either turn them away or if they are otherwise suitable for finance, guide them into a more flexible non-conforming loan.
But many brokers may be surprised to know it can be cheaper for the client to undergo credit repair – and if the client identifies errors or inconsistencies in their credit report – it could ethically be the best option for the client.
For instance, let’s calculate the figures on an average loan of $400,000 over 30 years, comparing non-conforming loan interest rate of 9.5% with a standard variable rate of 7%. The client would be paying a staggering $702.71 per month with non-conforming loan interest rates. They will be hit with $22,867.15 more in home loan repayments over the first three years of the loan.
Credit repair would not be suitable for those people who demonstrate an inability to make repayments. But as credit repairers many times we find the client has errors on their credit report, or the listing is unjust – and that we can rectify. Often we can determine that the file can be completely cleared, allowing the client access to a whole range of loans they were previously unsuitable for.
The popularity of credit repairers is due to a large volume of errors made by creditors on credit files, and a system of redress which is often difficult for the credit file holder to navigate.
The number of errors on credit files in Australia is astounding. Many of our clients thought they had impeccable repayment histories and would have never dreamed they would end up with a default. Let me tell you mistakes do often happen. Sometimes simple human error by the creditor leads to defaults incorrectly listed.
Whilst paying bills on time is the best way to ensure a clear credit file, it does not guarantee a clear credit report.
Statistics released by the Australian Consumer Association (now Choice Magazine) from a study conducted in 2004 showed around 34% of the clients surveyed had credit files which potentially contained errors in some way.
Recently Channel 7’s Today Tonight interviewed Veda Advantage’s Head of External Relations, Chris Gration on the possible number of errors on credit reports. He admitted errors within their system alone amounted to 1%.
“We give out about 250,000 credit reports to consumers every year. But only in 1 per cent of cases is there a material error on the file, so a default or an enquiry that’s incorrect,” Mr Gration told Today Tonight.
Even if as little as 1 per cent of those 14 million credit files contained errors, that would still currently leave 140,000 credit files in Australia containing errors that just shouldn’t be there.
The nature of credit reporting is that there is much opportunity for human error and these errors are usually not uncovered until people go about checking their credit file. Often people are unaware of their responsibility to maintain the accuracy of their own credit file – and so they don’t find out about their credit issues until they apply for a home loan.
Then, once people find problems with their credit file – they often find the process of removal of errors from their credit report difficult.
Current legislation does allow people to have inconsistencies removed from their credit file, but in reality many people are not successful when they attempt to fix it themselves. Often it is because they are not schooled enough in the legislation or can’t devote the necessary time to it to ensure a successful credit repair. Sometimes people who attempt default removal themselves can do more harm than good through lack of knowledge, or difficulty in negotiating with creditors.
One thing brokers can do to encourage a better transaction is to refer clients to us to have their credit checked prior to applying for finance. They can take advantage of their yearly free credit file check, which would uncover any problems with the credit file prior to finance application, and ensure the client is in the best possible position for qualifying for a loan. Plus a client does not generate a credit enquiry when they request a copy of their own credit file.
Brokers can also potentially save thousands in lost commission by helping those that may otherwise be turned away to get a clear credit file.
Once the credit file is repaired the client is then passed back to the referring broker to be fitted to the loan of their choice.
For more information for brokers on the benefits of referring clients, contact MyCRA Credit Repairs or call tollfree 1300 667 218.