December 2018 Newsletter

The Game: Credit

 

There is little in our world that can be as unbelievably, undeniably, unprecedently frustrating as our present-day credit system.

One slight mistake can rock your world.

Ever take a vacation and forget to pay a bill because you’re so caught up in preparing for your much-needed trip?

Ever been in a situation where it’s either pay rent, car payment and utilities or that outrageously high medical bill? That medical bill will get sent to collections real quick, but first things come first, right?

When my wife and I were preparing financially for the birth of our second son we made sure to get a solid estimate from the doctors, hospital and everyone who would need paid when he arrived. Our son came. There were little to no complications during birth. Everything went pretty smooth. The real bill came, and we owed $3,000 more than their estimates! $3,000! Someone forgot how to add apparently, and we were hosed! We didn’t have that kind of extra cash. Thankfully, we were fortunate enough that we’d been able to build our credit and had near 800 credit scores. So, we opened a credit card at 0% interest for the next 18 months and took care of it that way.

We were lucky.

But life happens. Mistakes happen. And the credit system can be unforgiving. I always call it a game. Because that’s how I can make sense of it. It’s a game of strategy and luck. You can plan, and life happens, and that plan goes to the wayside. Luck. Like rolling the dice in a game. Or things can go according to plan and you’re able to make the moves or adjustments to build your scores that much more. There’s a strategy aspect to credit.

We can let the system use us or we can figure out how to use it. But how do we do that? And why is it that important that we do?

First, the why: It’s simple. Any major purchases or expenses today must be bought with credit for the majority of our population. The way our world operates today, we can’t just wait until we save enough money to buy all the things required to survive. We buy a car on credit. We pay off medical bills with credit. Sometimes we buy Christmas presents on credit. And of course, we buy a house on credit.

And the simple fact is, if we don’t keep up on our credit, we’ll either get horrible interest rates on the credit we take out. Or we’ll get rejected altogether for credit. And once we start that downward spiral into bad credit, it’s really difficult to scrape our way back out of it.

As a HomeOwnership Counselor, I helped give credit advice to a lady who raised her scores from 550 to 750 in about 18 months. It literally changed her life financially. But I just gave the advice. She did the real work. And she would say that if she could do it, then anyone can.

How do we do it then? How do we win the game?

There are specific strategies that are a sure bet to upping those credit scores. Here are a few that we’ve seen work for our customers at the Pathfinder HomeOwnership Center:

 

  1. Clean Things Up – sounds like a dumb, well known answer, right? But be strategic about it. Don’t pay the full amount on the collections if you have any. Negotiate with the collector. Tell them if they send a statement in writing that they’ll clear the collection from your credit immediately, you’ll pay 50% of it right now. You’d be surprised at how quickly they’ll bite on it and take what they can get while they have you on the phone. They don’t like having to hunt you down. They’d really prefer to just get what they can out of you and move on. Typically, bad debts are written off as a loss in their books and they’ll take anything they can get. Maybe even pennies on the dollar. Sometimes you’ll get a hard-nosed collector though that won’t budge. But that’s not the norm.

 

If the collector says that they cannot get the debt removed from your credit, ask them who you need to contact to get that done. They could be working for another company to collect on that company’s behalf. But make sure it is in writing from the debt collector, so you have proof of the negotiation. And be sure that it states that the debt is to be 100% cleared from your credit. Not showed as “paid” on your credit. But that it is totally wiped off your credit as if it never existed. They can do it. I’ve seen it done numerous times.

Another quick strategy is to dispute the errors. There could be a judgement still showing on your report that you settled a year ago. You can go to this website to gain proof that the judgement was settled: https://public.courts.in.gov/mycase#/VW/Search. Then contact Equifax, Experian and TransUnion to start the dispute process. It’s pretty simple to start and might take 30 days to get the item cleared off your credit.

 

  1. Keep Credit Card Balances Low – This can be tough to do during the holidays. But during the rest of the year, keeping a small balance on your credit cards or charge accounts isn’t a bad thing. A standard rule of thumb is keeping the balances below 30% of the total credit limit. You have a $1,250 credit limit on a department store charge card? Then keep that card balance below $375. It shows that you can responsibly manage debts.

 

  1. Be Cautious When Shopping for Credit – There is an often-unknown rule here. If you’re shopping for a car or shopping for a credit card, make sure it’s done within a 30 day time frame. If you stretch that shopping out over the course of a couple months and your credit is pulled multiple times during that stretch of time, your credit scores will get dinged. If you shop hard in a shorter period of time, the credit bureaus will see that as smart consumer shopping and lump those credit pulls together so that it doesn’t damage your credit.

 

The list could go on with ways to play the credit game. Google some other ideas that are specific to your current situation and find ways to use your credit to fit your needs. But be sure to pay attention to your credit. It really can make or break you financially over the course of time.

If you play the game right though, the credit system can be used to your advantage. So, keep close tabs on it and plan ahead. Don’t leave your financial life all up to luck.

I hope some of this information can help, even during the holiday season.

The Pathfinder HomeOwnership Center Team sincerely wishes you all a Happy Holiday & New Year! Enjoy the time with friends & family! Talk to you in 2019! Take care.