How consultants can help clients improve their credit scores

Research from Elevate shows that 15% of people with nonprime credit scores earn a personal income of more than $100,000 a year. Additionally, new data from CreditCards.com shows that credit card debt is most prevalent among the lowest earners, while 37% of those with month-to-month balances make at least $100,000 annually.

“Even the wealthy can have less-than-ideal debt for all kinds of reasons,” says John Campbell, Eastern Region Head of Wealth Planning at US Bank Private Wealth Management. Yet having a better credit score can make a significant difference in their purchasing power. “It can have an impact—even for people who aren’t particularly struggling with low credit scores,” Campbell says.

Sometimes advisors avoid this topic because they mistakenly think that clients, especially wealthy people, do not suffer from credit-worthiness issues. But financial advisors who help clients with credit issues provide a significant value-add that can be long-lasting benefits.

Working with customers on credit-related issues is especially relevant now, given that two out of five people believe they need credit to cover essential and unforeseen expenses in the next three months. will need to be trusted, as an August survey showed.

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In addition, two out of three expressed some degree of concern that their credit score would negatively affect their ability to access credit over the same time period, according to the Experian survey.

Here are eight ways consultants are helping clients overcome credit-related issues.

Provide education. Advisors must determine for clients that a credit score is typically between 300 and 850. A good credit score is on the FICO score range from 670 to 739, while a good credit score on the VantageScore range is 661 to 780, according to Experian.

Next, advisors can help clients understand the factors that go into a solid credit score and provide them with insights to help them achieve one. Campbell says these factors include payment history, credit utilization, credit history and credit mix.

determine what went wrong, Financial advisors say that clients are sometimes surprised to find that their credit is not as good as they had assumed. Often, this happens when they go to apply for a car or home loan and are offered a higher rate than expected. They don’t always know why they have the score they do or what they can do to improve it.

Delinquencies can be caused by errors in a person’s credit report, irresponsible financial behavior early in their career, or job loss. Or maybe they’ve fallen behind on a few bills, or haven’t built up a strong credit history. This is where consultants can have the most impact – by digging deeper to help uncover the root of the problem and then suggesting improvements to set clients on a better path. Advisors say that even small changes can make a big difference in a customer’s credit score.

fix errors. Mistakes can easily derail your credit. That’s why Jeffrey Bush, chief executive and chief financial officer of Informed Family Financial Services in Norristown, PA, suggests that everyone check their credit reports carefully to make sure they are accurate. Mistakes, or worse—identity theft—can negatively affect a person’s score. It is therefore advisable for people to check their scores with each of the three main credit reporting agencies-

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and experience—once a year, which they can visit for free www.AnnualCreditReport.com, they can also surveillance Earn their credit more regularly by signing up for free, or paid, credit-monitoring services.

Establish good habits. Some customers struggle with low credit because they are not careful in paying their bills on time. For these customers, Brian C., founding partner at Capital Stewards in Madison, Ala., recommends that they set their bills on autopay. This way, they will ensure to make timely payments, which will help boost their credit score, but there may be issues, so people need to make sure to pay attention to the charges they are ending up with. Some consultants also offer bill payment services,

Provide suitable equipment. People who are baffled by the idea of ​​budgeting may find it difficult to do it on a monthly basis, so automating your finances can be a useful strategy. Bill automation, however, will be unlikely to pass muster with someone hyper-conscious about planning and controlling. For consultants, understanding these nuances can be vital to providing clients with the best possible advice to help them improve their credit standing. Jonathan Walker, executive director of the Elevates Center for the New Middle Class, says, “It’s important to know what kind of person they are so that you can help them succeed and offer programs or ideas that will help them succeed in the long run.” Help to be.” Focuses on consumers with credit scores less than 700 and consumers with little or no savings.

Elevate offers a free online money mindfulness tool It helps people understand the value of their money and identify the main financial goals they want to work on. Sharing these results with your financial advisor can help the advisor better formulate a plan going forward, Walker says.

Consider consolidation. Campbell also recommends clients consolidate or refinance high-interest rate loans, if possible. If they have variable interest rates that can be converted to a fixed rate, it may be prudent, especially in a rising interest rate environment, he says.

Reduce debt Credit utilization is another important point for many consumers. According to recent research, the average American consumer uses 40% of their available credit card limit monthly.

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This exceeds the typically recommended 30% limit.

When people have large credit card balances, it is sometimes advisable to pay the highest interest rate first. But from a credit score perspective, it is advisable to focus on reducing credit balances so that they are below the 30% threshold, says C. He recommends reducing one card to 30%, then moving on to the next card and moving on. “It’s a really good way to improve your score relatively quickly,” he says.

Build credit. Fixing credit issues can take time, but helping customers plan can be important.

C cites a real life example of a married doctor who was disappointed by a car loan offering a much higher rate than expected. This is true even though the combined income of her and her husband was more than $500,000. As a starting point, C recommended that the wife become an authorized user on the husband’s credit card to help increase his credit score, which was approximately 660. A few months later, he bought a house and was listed on the mortgage, another credit-building strategy.

“You must have access to credit to get a high credit score,” he says.

Write to advisor.editors@barrons.com

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