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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2016

Borrowing, Jobs and Credit Reports

Educate young homebuyers on the importance of maintaining a good credit rating

A VISA USA survey conducted a few years ago discovered that about 80 percent of Americans did not know that their credit history could be used as a screening tool when they apply for employment — with fewer than a dozen states putting any limitations on the use of credit information in hiring. Many people know that their credit history can affect their ability to borrow money, open charge accounts, rent apartments and secure mortgages. The vast majority of Americans, however, don’t know that their credit information is being used by many employers as part of a pre-hiring background check.

If you’re a loan originator, and you’re content with your current company, you simply may file this piece of data away until you begin considering your next career move. If you deal with a lot of first-time homebuyers who are also first-time employees — in other words, millennials — this information can affect your production.

How often have you had to turn down otherwise qualified clients because of bad credit ratings? What do you do when that happens? If you want to close that deal eventually and cement a lifelong client in the process, you help those homebuyers learn how to improve their credit rating. Adding this information to your list of credit do’s and don’ts can turn you into a real credit-rating expert in the eyes of younger clients.

Start by telling clients that creditors aren’t the only ones who use credit scores to judge people. Employers may use these same scores to evaluate a person’s character and suitability for a job. Scores from 700 to 850 demonstrate good judgment and character, and a responsibility to manage financial obligations. A favorable score also suggests a maturity to effectively deal with their financial well-being and management. These are all characteristics employers find attractive when considering potential hires.

Scores from 300 to 699 indicate the applicant may have difficulty managing monthly payment responsibilities. Employers can see this as an indication of irresponsibility. A high debt-to-income ratio also may be seen as a negative distraction. Credit histories with a lot of carried debt, negative accounts, delinquencies and charge-offs are other red flags that could cost a potential future client a job.

According to a 2015 survey by the American Bankers Association, about 40 percent of Americans hadn’t checked their credit score in the previous 12 months. A 2014 survey by Credit.com showed that one in six people had never checked their credit scores. So, it is quite likely that many of your clients didn’t know their credit score when they applied for their mortgage and may have no idea how to improve it. If you help your young clients to understand the importance of checking their scores, they may be more confident when applying for loans or jobs in the future.

If your young clients have never seen their credit report, here are some things to have them look for when they do check. Again this is information that potential employers will know if they do a background check on them.

Every time someone applies for credit a notation is listed on their credit report that a lender has checked that credit file. These “hard pulls” can impact their credit score and too many hard-pull notations will lower their credit score, so they should avoid applying for a lot of credit cards while trying to improve their scores.

The good news is that when a person or company performs a pre-employment background check, this should be noted as a “soft pull,” which will not affect their credit rating. Unfortunately, some employers do not go through the proper channels when getting a credit check, which results in a hard pull. Tell your clients to ask prospective employers to confirm they will be doing a soft pull when requesting a report.

Make sure your clients check their personal details in the report as well, because these may be out of date. This information includes full name, Social Security number, date of birth, current and previous addresses, current and previous places of employment and telephone number. All of these can change often for young clients just getting into the job market.

The most damaging information on a credit report is generally caused by human error in either filing or deleting content. Inaccuracies can include duplication of information, incorrect notation of an outstanding balance that has been paid, and delinquent accounts that remain on the report longer than the permitted seven years. All these things can lower credit scores and paint a negative picture that can hurt your clients when they apply for jobs or come to you for a loan.

It is imperative they check their credit report annually to ensure it is correct and up to date. Luckily, the federal government mandates that everyone can get a free credit report once a year from each of the big three reporting agencies — Experion, TransUnion and Equifax. All three provide easy-to-follow directions on how to get you’re a free credit report.

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If you have young clients who are part of the large percentage of people who don’t know how background checks can affect employment screening in many states or have never even seen their credit report, you can help them become and remain credit-worthy by educating them on these facts. As a mortgage loan originator, you know that a high credit score can make or break a loan application. Many people, however, don’t know that pre-employment credit background checks are another important reason for maintaining good credit health. And, if your young clients can’t secure jobs, they’ll never come back to you to secure a loan.


 


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