The Credit Myth
From the day we first figure out what a “Piggy Bank” is, our life changes. We start to understand the importance of money and how to manage it, somewhat. Later on in our lives, we understand what a “Pass Book” savings account is and begin to plan financially. Later, we open our first checking account and have now come to a higher level of respect for that Financial Institution (Bank) that now has become part of our everyday existence. Then the day comes when we go to this great institution and ask for a loan. At this point, we sometimes come across a loan officer or assistant manager that now goes through a rapid change and develops the personality of a “Carrot”. Expressing such phrases as “Hmmmnn, are you a depositor?” “Do you have Good Credit?” “I don’t know why don’t you fill this out and call me in a week?” Do you have any Assets?” Now after suffering through this intimidating session, you complete the form and make that call. After not getting any responses for a week, you show up and pointedly ask the officer the status. He or she replies, “You’ve been declined for credit reasons and perhaps you can try again in a year.” Shocked, you quickly respond with, “why? What problems do I have?” Now this distinguished person replies, “I can’t tell you. You’ll have to write the credit reporting agency at this address and they’ll mail you the reasons why.” You say, “Why can’t you tell me? I have identification and it’s my information? He or she says “sorry.” “Well how long does it take?” “About three weeks or so” is the response. Nothing like feeling like you’re a Citizen.Welcome to the world of Credit! Now comes the rest of the education. It takes 7 to 10 years to get your credit back. Rubbish! It takes seven years to get beyond a car repossession. Not even close! Can’t purchase a home within 7 to 10 years after a foreclosure or bankruptcy. Not True! Have bad credit cards and loans, therefore can’t get a car or a mortgage. Crazy! It takes 5 to 7 years to rebuild credit. Unbelievable! Better off going to a debt managing service. Sorry, but no. Won’t have used any credit for years and just pay cash so I can qualify again. No, again.!The best person to help you get creditworthy again is yourself! By the way it takes months not years. If you believe credit bureaus are objective, than I have a lot of “Ocean Front Property” I’d like to sell you in Tucson. The money is collected by them from one side of the table, so who’s side do you think they’re on? We’ll talk about Credit Bureaus in another post later.The Collection process is a system designed to intimidate. Collection agents are famous for their distorted legal advice. Good responses to an agent. Things like, “If you don’t pay by Friday, we are taking legal action’ “Hmmmnn, does that mean I’ll get arrested? “If you don’t have the money, you’ll have to get it from your parents.” “Uh, they are both dead.” “We’ll attach your pay check.” “I’m collecting unemployment.” And it goes on……Good question you might ask an agent if they are really mean. “I wonder if I can ask you something?” “What”. “When was it when you first discovered that you couldn’t hold a real Job?’ But hey there are some good agents out there, I think but not many.The first thing one has to do is to decide to take charge of their destiny and don’t listen to the “Can’t Do People”. There are 2 distinct types of bad credit accounts or trade lines, “Closed or Open.” Closed means paid! Open means there is a balance. Charge Offs on credit cards are either open (balance) or closed (paid or settled) now there is one myth that claims that on a bad account, it drops off your report after 7 years. True and False! If the account is “Closed (paid), it drops after 7 years. If it is “Open (balance owing)”, then it can continue forever! Let’s look at different bad account names. There are collection accounts, loan accounts, charge offs, repossessions, judgments and foreclosures. They are either Open or Closed. Hmmmn, you might say, how can a car repossession be open or closed? Well technically, they took the car but resold it but there can still be a balance owed. Usually, the car company just writes off the loss, however there are a few that try to collect. The fact is that they usually auction them off at a few cents on the dollar and the argument can be made that there was no attempt to collect Fair Market Value and the borrower should not be “nickled and dimed.” The Foreclosure, however, can have a deficiency if the property was sold at a loss to the bank. A huge amount would probably be cured by a Chapter 7 Bankruptcy. Remember, all accounts can be settled for significantly less! Discounts are not unusual to be as low as 10% of the principal balance. Guess what happens when you settle? It becomes “Closed”. Although, a closed bad credit account can be reported for 7 years, it does not hurt your credit because you became responsible enough to correct the problems. All mortgage lenders and creditors can see 7 years of your credit life but are more concerned about the last 12 to 24 months. Conventional mortgage lenders will lend on these situations as long as the bad accounts are closed or paid (even if settled for less)! Third party debt relief. Most lenders and creditors take a diminished view of needing outside assistance to get your credit life in order. A respectable view is taken when you take charge of your affairs and correct it. This is the important part. It takes months not years to rebuild. Some credit is better than no credit. You have a multitude of options but the first step is taking a deep breath and ending the pain and harassment. When it’s over you’ll look back and relate to that famous song, “Is that all there is”?