The responsibility lies with brokers to ask prospective clients whether they have adverse listings on their credit file.
Brokers tell me this question often elicits a blank look and a defensive “no” from the client, but the broker senses they may not be telling the truth. At this point, a broker should trust their intuition and ask their client’s permission to check their credit file first before putting in a loan application, because this will save a lot of time and heartache for the client and the broker down the track.
There is still a lot of shame about any incapacity to manage one’s own finances, and clients will need your support and encouragement to reveal their past difficulties. This reticence is probably because there is an unrealistic community pressure to act as if you are in perfect financial health at all times. But who do you know who has been consistently financially trouble free? Most clients I deal with have had a bad patch at some point in their financial lives caused by things like relationship breakdowns, illness, accident, job loss or the like.
So if you can encourage a client to do a credit check and alleviate some of their shame by saying things such as “you are not alone”, this will be a good first step towards getting their loan approved. Because we all know they are not alone – 15 per cent of credit-active consumers in Australia currently have negative listings, and many more have had them over their credit-active lifetime.
If you don’t check their credit file, and the file has adverse listings on it that you don’t know about, you will place the loan with the wrong lender and ensure a rejection (bad news for you and your client). As well, a completely unnecessary enquiry listing will be placed on your client’s credit file as part of the rejected application, which will further adversely affect their credit score.
There is another essential conversation to have with your client before putting in a loan application. This concerns whether the client has an internal black mark with a lender that does not appear on their credit file. I had a case like this recently. The client had a clear credit file, but had been late with some payments with a particular lender over the life of their overdraft. The broker was unaware of this and didn’t advise the client which lender they were applying to. So the loan was denied, and the client had an unnecessary enquiry put on their credit file that adversely affected their score as well.
So, there are two conversations that you need to have with a prospective client before putting in a loan application. You need to ask them if they have adverse listings on their credit file, and if you doubt their answer, ask for permission to do a credit check prior to putting in a loan application. The second conversation you need to have is to ask your client if they have ever had an issue with a particular lender that did not lead to a default or court action on a credit file but may have led to an internal black mark. As a broker, you should then avoid that lender when applying for finance for this client. These simple actions will lead to the best outcomes when applying for finance – for you and your client.