Some Thoughts on Credit
In light of today’s headlines regarding the bailout of Fannie Mae and Freddie Mac (and my own experience with trying to buy a home for the second time in two years):
What rescue means for mortgage rates
Bailout of mortgage giants should result in lower mortgage costs and make credit more available.
But lending standards will stay tight and risky borrowers will still pay extra fees.
So…basically, if you’ve got bad credit…you have to pay more?
But how did you get bad credit in the first place?
It always has to do with not paying bills on time and this
- Over extended credit (spending higher than income)
- Poor money management (not paying attention to where your money is going)
- Job Loss
- Unexpected health issues (loss of work + medical costs)
- Change in life (divorce, child, natural disaster, accident)
So, in our “It’s not my fault” society, “the devil made me do it” mentality, we HAVE to take some personal responsibility.
However, while we need to take personal responsibility, it is very obvious that companies have made sure they were able to make plenty of money off the uneducated masses (myself included). In what ways, you ask?
- Mortgage companies gave people loans who’s credit was on the verge
- -fudging numbers
- -using secondary programs
- -encouraging personal loans as ‘gifts’
- Paycheck Advance companies loan money short term at an incredible 350% or MORE!
- Credit Card companies hook you with no interest but add fees and charges and basically can jack the interest up past 28% for the first infraction
- Banks give overdraft ‘insurance’ and charge a fee for bounced checks (yours or someone else who attempts to pay you and fails)
Now…if you pay your bills on time, like you all should, none of this is a problem.
If you ignore all commercials and advertising and avoid needless purchases of the latest video, clothing, shoes, cameras, games, etc. you will not have a problem living within your means and you will pay your bills on time. This will allow you to avoid all late charges, increased interest and give you a wonderful credit score.
Or will it?
Did you know if you DON’T have a credit card, you will NOT build good credit?
Not only that, but if you DO have a credit card and you pay it off every month, that company lists you as a ‘deadbeat’ user. Why? Because they are not making any interest off you at all.
Nice, eh? Some advice gurus say to pay off your balance every month. Others say to keep a 30-40% balance of your total credit line. (shows you are a good little consumer).
And…every time a company checks your credit it affects your credit?
Other things that affect your credit?
- Bankruptcy (duh)…harder to do now, by the way. New laws made recently make it much harder.
- Exceeding your credit limit (careful if you have a annual fee that might take you over the limit AND watch your minimum payment vs. interest if your close to your limit…the interest could push you over…resulting in an over the limit fee.)
- Defaulting on a loan (ESPECIALLY on a home loan. VERY bad for future credit)
- Writing bad checks (harder to do now-a-days, but still possible)
- Persistently late payments (this goes for utilities as well…cut back for a couple of weeks on ‘extras’ and get ahead. The late fees you’ll save ALONE will pay for future ‘extras’ you want.)
- Too many credit cards with large balances
Scared to look at your credit? I was!
But knowledge is power and YOU have the power to start now.
Don’t get frustrated that it may take months or years to recover. Start now!
Did you know you can get a FREE report once a year?
It won’t give you the scores, but it will give you all the reports you need from the three credit reporting agencies:
- Equifax: (1-800-685-1111)
- Experian: (1-888-397-3742)
- TransUnion: (1-800-916-8800)
The National Foundation for Consumer Credit (NFCC) recommends that you check your credit information yearly.
Play the Game!
So, many of you readers have seen photos of the two places I planned to buy over the past year only to be thwarted at the 11th hour.
Was I bitter or angry? Okay..the first time, yes. But what I’ve come to realize is that our society is ever changing and the rules change constantly.
The last home purchase was going on during the latest crisis. I knew problems may arise, but I kept moving forward. In the end, changes in the mortgage industry prevented me from closing on the house with the deal I had arranged with the seller…which was: they paid all closing costs AND they paid 3% in down-payment assistance (an existing program). Zero down for me! Isn’t that what MANY people pitch for home buyers? I was taking advantage of the systems and programs only to be thwarted in the end.
Am I mad this time?
Nah. Just got to learn the new rules and get back in the game.
Two Ways to Fix Your Credit
Get in there and fix it!
Hire someone to fix it for you!
With the Free reports and some time, you can write to the companies, dispute what’s wrong, clear off old stuff and fix your credit. OR…
Do what I did. I hired a company who specializes in cleaning up and monitoring your credit. The one I hired was Vitesse Fiancial. Why?
Well…if you prefer quality time with your family or, like me, have a side business that makes you some money, your time may be worth more than they charge.
Vitesse charges $50/month and likes a one year contract ($600). You have to pull all your credit info together and pay for a credit report every 3 months or so yourself ($35ish), but they do all the organizing, contacting and they know all the tricks to get things cleared off, updated, etc. My sister is the one who pointed me in the right direction and has used them for several months more than me and already her scores have increased. I am a few weeks away from seeing how mine has been affected and will keep you all updated. Here’s a link to their site: www.vitessfinancial.com
HERE’S A THOUGHT: How About Some Reform and Education?
I started writing this blog because I started thinking about how all the companies were screwing us over, but immediately said “TAKE RESPONSIBILITY!”
We ALL want to make money and do more things and life in peace and happiness. Well…most of us do. The bottom line is that some companies and people KNOW they can make money by playing off of people’s desires who have made mistakes and can’t get things easily. However, that traps them into a cycle they can’t escape.
Did you know if you charged a credit card to the max and only made the minimum payment it would take 20 years to pay off the amount? And on some, it never would! Is this bad business? NO! IT’s FREAKIN GENIUS! But would I do it?
I’d much rather empower people to make more money and spend more money WITH me. NOT be so tapped out that they stiff me later on if they make a mistake.
Face it. Mistakes happen sometimes no matter how diligent we try to be.
Which brings about my last point.
Why not focus on some reform and education! How many people learned in public/private school much more about money besides how to write checks? How many people had parents that focused on finances, budgets, investing and the difference between earning money and creating passive income?
Probably only a small percentage. I hope I’m wrong. But I think I may be on target.
I’ve heard some credit card companies have programs to help teach the proper use of Credit Cards (still allowing for them to profit, but not to loose clients).
I think Sallie Mae and Freddie Mac have programs to teach the importance of credit.
But why not make people take a CLASS before buying their first home? “FREE HOME inspection if you take this class!”
Take a CLASS before getting their first credit card. “No interest for ONE YEAR if you take this class!”
After all, we have to take a drivers test before driving a car.
And how about refresher courses every few years? I just found out about some driving laws I didn’t know existed! Don’t ask me how, but I’ll say it was mandatory (laugh).
All I’m saying is, even though there are plenty of resources out there AND the fact that “Ignorance is no excuse” when it comes to the law, let’s come up with some ways to make SURE people are informed and educated.
More on this topic later.
Now…go check your accounts…don’t be hard on yourself…and figure out what you can cut out for a few weeks to get ahead on ONE bill. Then next month do the same for another.
I’m off to check my accounts.