Improving your credit score can have many benefits for your financial well-being, such as lower interest rates, easier access to loans, and better bargaining power. As a personal coach, you can help your clients achieve their credit goals by following these steps:
The first step is to help your clients understand where they stand with their credit history and score. You can use free online tools or services to get their credit reports from the three major bureaus: Equifax, Experian, and TransUnion. Review the reports with your clients and identify any errors, discrepancies, or negative items that may affect their score. Help them dispute any inaccurate or outdated information and advise them on how to deal with any collections, judgments, or bankruptcies.
Be aware of for-profit credit repair companies that will offer to remove negative information from your client's credit report for a fee. These companies abuse the credit reporting system by disputing any negative information, even if it's legitimate and correct. While they may be successful in temporarily removing it from the credit report, the negative mark may re-appear later when the debt is validated or sold to a debt collector or different collection agency. The Consumer Financial Protection Bureau, Federal Trade Commission, and Better Business Bureau have all issued warnings about credit repair.
The next step is to help your clients set realistic and specific goals for improving their credit score. Depending on their situation, they may have different priorities and timelines. For example, some may want to boost their score quickly to qualify for a mortgage, while others may want to improve their score gradually to save money on interest. Help them define their desired outcome, such as reaching a certain score range, paying off a certain amount of debt, or improving their credit mix. Then, help them break down their goal into smaller and measurable steps, such as paying off a certain percentage of their balance each month, applying for a secured credit card, or increasing their credit limit.
Local banks and credit unions, especially ones designated as a Community Development Financial Institution (CDFI), may offer "second chance" tools like a credit-builder loan which can help reestablish or improve your client's credit profile. This is also a good option for your clients if they are "unbanked".
The third step is to help your clients create a budget and a payment plan that aligns with their goals and their income. You can use online tools or apps to help them track their income and expenses, and identify areas where they can save or cut costs. Then, help them allocate a portion of their income to paying off their debt, starting with the highest interest rate or the lowest balance, depending on their preference. Encourage them to pay more than the minimum amount, and to pay on time and in full every month. Also, help them avoid taking on new debt or using more than 30% of their available credit.
Encourage your client to talk to their creditors if they are struggling to pay down high-interest credit card debt. A LendingTree survey recently found that 76% of requests for a lower APR were granted, and the average reduction was about 6 percentage points. If your client is really overwhelmed with debt, suggest they talk with a reputable nonprofit credit counseling agency who may be able to reduce their interest rates even more. For example, Money Management International has found its average debt management client reduces their interest rates by 19 percentage points, down to an average of about 7% APR.
The fourth step is to help your clients monitor and celebrate their progress towards their credit goals. You can use online tools or services to check their credit score regularly and see how it changes over time. You can also review their credit reports periodically and make sure they are accurate and updated. Help them recognize and appreciate their achievements, such as paying off a debt, increasing their score, or improving their credit mix. Celebrate their milestones and reward them with something meaningful and affordable, such as a gift, a treat, or a donation.
Your client's bank or credit card companies may offer credit tracking tools, so suggest that they inquire or log into their online accounts to see what is available to them to monitor their progress monthly.
The fifth step is to help your clients educate and motivate themselves to maintain and improve their credit score. You can provide them with relevant and useful information and resources on credit management, such as articles, books, podcasts, or courses. You can also share your own tips and tricks, or the success stories of other clients or people you know. Help them develop a positive and proactive attitude towards their credit, and remind them of the benefits and opportunities that await them. Also, help them cope with any challenges or setbacks, and encourage them to keep going and not give up.
There are several ways to improve your credit score. The most vital step is to seek help from your trusted advisors. Additionally, you can monitor your credit regularly, manage your finances efficiently, avoid applying for new credit, and close any unnecessary accounts.
The sixth step is to help your clients review and adjust their plan as needed. You can schedule regular sessions with them to evaluate their results and feedback, and see if they are on track with their goals. You can also help them identify any new or changing factors that may affect their credit, such as life events, income changes, or market conditions. Help them adapt and modify their plan accordingly, and set new or revised goals if necessary. Also, help them maintain a long-term perspective and a balanced approach to their credit, and avoid any extreme or risky actions that may harm their score.
It's always a good idea to stay on top of your credit score and file. One way to do this is by setting up monitors with alerts, and being agile in your approach to managing your personal credit.