Like so many millions of others, my divorce negatively impacted my credit. I had managed to earn a very high credit score during the 15 years of my marriage, after starting out like many young people, with no credit and having difficulty obtaining both a decent job and any type of credit or loan. First, I paid off a car loan that I received from a local bank, where, surprise, the bank President had known me since I was a baby, and the lady who processed my loan was my "second mom" who also gave me plenty of tips about how to behave in business or social situations over the years.
They are on television right now talking about the mortgage bailout and discussing fears that people will purposely stop paying their mortgages on time, just in order to get some of the bailout money for people who are in arrears.
Well, I'd like to think that the check-and-balance on this is the havoc that stopping paying your mortgage for even one payment will wreak on your credit score. Wallet Pop has a feature on the bad consequences of a poor credit score. There have been a lot of arguments about credit scores -- are they fair? What is the legerdemain that produces them? Why do some people who we can know intuitively are "bad risks" have seemingly "good" credit scores? Why do good people who are good risks sometimes have poor credit scores -- like the horrible discovery I made when, in the days before I monitored my credit frequently, that my former husband's failure to make two house payments on time had sent me down into the category of miserable grifter. Don't think I didn't get treated that way, too. When I applied for a modest loan to further my defunct home plans in Calabasas, you would have thought I was the Octomom by the way they treated me.
Now, five years later, my credit score is back over 750. I hadn't even thought about extending any credit since the terrible financial conditions of last fall. With all of the negative information coming out, I was beginning to think that all of the financial truths that I had known or learned throughout my life were meaningless. Why bother to pay bills? There'd be a bailout. Why make any effort whatsoever? Somebody would come along and pay the mortgage.
Well, Wallet Pop is holding the standard forth and explaining why, even with all of the turmoil, the old financial truths still hold true. A poor credit score doesn't just cause pain with credit cards, car loans and mortgages, in some cases, prohibiting them. It also prohibits or inhibits small business loans (don't pay attention to those "incorporate and pretend you with lousy credit is someone else" schemes). As an executive, I have been aware for some time that any responsible corporation is going to check my credit, or that of any other employee who's going to be involved with matters of money and confidentiality. People with scores below 600 aren't going to be considered, and it will cause some difficulty with those security clearances for those involved in government/government contracting. Now, insurance companies are getting wise and also taking credit scores into consideration, having discovered that the people who don't pay their bills also make more insurance claims. Private student loans are also taking credit scores into consideration, so your education or that of your children can also be negatively impacted by poor credit.
Do I sound like a credit Nazi? There are many reasons why honest people can have poor credit scores. My case is one -- I had no idea the house payments weren't being made until I discovered through being treated like a criminal by the lending company. Sudden, unavoidable disasters, like layoffs, illnesses or a death in the family can also wreak havoc, and in these cases, the best strategy is to stay on top of one's accounts and communicate with lenders. Your credit score will dive, but it will recover at the same rate that you do if you deal with the crisis openly and honestly.
I really was questioning whether or not any of the things "we" as honest people thought were true and important over the years. The financial meltdown has caused so many questions and so much fear, and has impacted so many people's long-term plans. However, I feel that there is simply nothing for people to go to except the old-fashioned approach of paying one's bills on time, not living beyond one's means, and having a care about one's dealings with others - be they Verizon (I swear, that company is going to melt down) or American Express or auto or home lenders. I don't think that the bailouts mean that nobody has to pay bills any more and we'll all have free breakfasts, lunches and dinners on President Obama. In fact, I'm seeing signs of more of a lockdown than ever. I think once all is said and done, it will be a stricter, more conservative financial climate in general. This will not be a bad thing. Most writers live simply and modestly and don't want $100,000 cars or multi-million dollar estates that they can't afford. The underlying basis of credit, business and lending is reasonableness. Ultra-high interest rates aren't reasonable (try renegotiating now, by the way - people are having some success reducing their credit card interest rates these days) and neither is taking out credit or loans that one has no intention of ever repaying, then making up some excuse later and going on to the next poor sucker.