Empowering Your Clients to Improve Their Credit Scores

As we’ve reported previously, poor credit is one of the major deterrents facing millennials as they embark on the journey to homeownership. NerdWallet found millennials cite “insufficient credit score or history” as their biggest obstacle to getting a mortgage. Of course, low credit scores don’t just affect millennials. Poor credit can be a challenge for every demographic, however, potential borrowers shouldn’t get discouraged. Though it’s ultimately the responsibility of the borrower to improve their credit score, an experienced, knowledgeable housing professional can play a powerful role by encouraging hopeful buyers and leading them in the right direction to make the necessary changes to improve their current credit situation.

J.D. Crowe, President of Southeast Mortgage

So how can you begin a conversation with those struggling with low credit scores and empower them to make the right decisions that will lead them to homeownership?

Encourage Clients to Address Delinquencies

One of the first telling signs of a high-risk borrower is the status of delinquent accounts, which include collections, late accounts and charge-offs. Those looking to improve their credit score and loan desirability should take the necessary steps to address these debts as soon as possible. Let borrowers know that repaying the debt won’t remove the black mark from their credit report, as it could remain for up to seven years. However, they may become more credit worthy and could even gain a few points on their score.

Educate on FHA loans

Those with less-than-ideal credit scores sometimes have housing options through Federal Housing Administration loans. The FHA, a government agency charged with helping homebuyers, works with approved lenders to help applicants who have lower credit scores and small down payments, and can offer as much as 96.5 percent financing.

Inform of Disputes

Inaccurate charges or false information on credit reports are not uncommon and can severely – and unfairly damage – a credit score. Fortunately, errors can be reported and corrected, although it can be a lengthy process. Inform your potential client to review his or her credit reports in detail, highlighting the errors and making copies of the pages where errors are found. Smart Asset recommends mailing, rather than submitting online, the copies, evidence and explanation to each bureau that is reporting the inaccuracies.

For those dreaming of homeownership, poor credit may seem insurmountable. However, knowledge is power. While there is no such thing as a quick credit fix, by arming hopeful homebuyers with the knowledge to rebuild their credit, you may be able to empower them to reach their ultimate goal of homeownership.