The Credit Conundrum for High-Net-Worth Individuals

Credit has become an incredibly important aspect of a financial profile. Having a high credit score can help you to secure the best available interest rates on loans and can even factor into your ability to get hired or rent an apartment. But what if you don’t have a credit report? Or what if your credit score has been compromised as a result of identity theft or errors on your credit report?

You might be surprised to learn that high-profile individuals such as entertainers and professional athletes sometimes have difficulty obtaining loans or credit cards because they lack sufficient credit history. And those who already have credit need to be aware of other issues, like protecting themselves from identity theft.

Credit building

Children from wealthy families may have trouble building credit because while they could have significant net worth from inherited gifts and trusts, in some circumstances they may not appear to have earned income. Many lenders will not grant loans (for mortgages, cars, etc.) or credit cards in these situations. There may be similar challenges for new U.S. residents who have sizeable assets but no U.S. credit history. Likewise, recent divorcees or widowed individuals may lack credit if their spouse was the primary account holder on the couple’s loans, bank accounts and credit card accounts. And athletes and other celebrities who’ve experienced a rapid increase in net worth also may face credit issues.

Fortunately, there are ways to properly build a credit profile for credit-challenged high-net-worth individuals that can eventually enable them to acquire luxury items and black cards while achieving lower interest rates. Experienced financial professionals can help you with solutions such as secured credit cards, co-signing arrangements, and piggy-backing on a corporate account, as appropriate.

Another consideration, borrowing within a business structure, like a limited liability company, may help insulate an individual from personal liability. Building business credit can take time, dedication, and precision, but there are specific techniques that can be used to help establish credit for these types of entities.

Identity theft protection and recovery

Statistics show that affluent or high-profile individuals are more often victims of identity theft. Having more exposure to the public and more people they work with, in addition to a higher number of financial accounts, can make it more challenging for them to safeguard their personal information.

“With major data breaches being reported almost every month, now is the time to implement a tool to stop thieves before they can start,” said Anthony Davenport, president and CEO of Regal Financial, which offers a credit block service.

Credit block services can help prevent anyone from opening a new line of credit or even obtaining a credit report in a person’s name unless the block is lifted first. This paid service is one way to help safeguard your personal information and prevent unauthorized access to your credit report.

There are also many free, online credit monitoring services available that can help you to keep track of your ever-changing credit history and identify suspicious activity. While these tools can be helpful, keep in mind that these services may only inform you after fraudulent activity has already occurred.

It seems that news reports of major organizations, including Target, Home Depot and JPMorgan Chase, being hacked have become more frequent. Some of these data breaches have resulted in millions of customers’ credit card and other personal information being compromised.

Not surprisingly, identity theft was one of the most common schemes listed on the IRS’ 2015 “Dirty Dozen” tax scams list. The IRS recently published a suggested list of steps to take if someone files a fraudulent tax return using your Social Security number. If you are a victim of identity theft tax fraud, take the following steps as soon as possible:

• Submit a Form 14039, Identity Theft Affidavit, to the IRS;
• Notify your financial institutions;
• Contact the fraud department of the three major credit bureaus;
• Report fraudulent activity to your local police;
• File a complaint with the FTC; and
• Contact the Social Security Administration.

Credit restoration

One in four consumers have at least one error on their credit report that could affect their FICO score, according to a 2013 Federal Trade Commission study of the U.S. credit reporting industry. You can check your credit report for free once a year from all three credit bureaus (Experian, Equifax and Transunion) at annualcreditreport.com.

Finding the errors is often easier than getting them corrected. If you notice an error, you should file a dispute with the credit agency in order to get the problem fixed.

There are also appropriate ways to remove unfavorable information from your credit report, including late payments, collections, public records, bankruptcies, short sales, foreclosures, and loan modifications. In some cases, this type of information can simply be the result of someone overlooking a bill or missing a payment. Or there can be negative credit implications resulting from a divorce. Removing this type of information could greatly improve your credit profile.

In conclusion, navigating your way through the consumer credit industry can be a complicated process.  With proper guidance and the help of experienced professionals, you can get through that process much easier.