Having been in the mortgage business, I am acutely aware of what one’s credit report means to that person; to society in general.
In St. Louis, everyone, of course, asks you what high school you went to. Why? Because the way St. Louis is laid out, knowing what geographic area one comes from allows locals to make certain assumptions about that person, their upbringing, their socioeconomic status (at least when they were in school). In that same vein, one’s credit report allows or causes others to make assumptions about you.
A low score tells the credit industry that you don’t pay your bills on time, or that you owe a lot of people a lot of money, or the opposite. Credit reports do not reflect your income or financial value. The reporting bureaus have no idea how much you earn or the size if your investment portfolio.
But think about the assumptions. Like the person that may have gone to school in a less-affluent district, but went college and became an affluent professional, or started a business and became a wealthy entrepreneur. All we know, at first, is where you came from, not where you are. Likewise with a credit report, all we know is where you are, not where you came from. We have no idea how you came to be in this position.
I once worked with a married couple, both attorneys, both very successful, both very busy. For awhile, each thought the other was handling bill-paying, and neither was. So, despite a low loan-to-value of their mortgage, and an almost $400,000 annual, combined income, they had low credit scores. That tells me, legitimately, that they didn’t pay their bills on time. Does it make them a bad credit risk? I would argue that it does not.
I worked with another couple that had had excellent credit. They had dual incomes, a mortgage, a couple of car payments, a couple of credit cards that they paid off, in full, every month. Let’s say a 10-year, positive credit history. Then he got laid off. He was unemployed for about a year. Then he got a job and is, once again, paying all of his bills on time. An excellent credit risk, right? Not today.
You see, when he had insufficient funds to pay his bills on time, but oddly, still had to live, he generated late payments. Not one creditor ever lost a penny on him. In fact, because he was late with payments, the creditors actually made MORE money from him in the form of late fees.
Let’s not even go to the extreme that he lost his home to foreclosure and must now live an “all cash” existence. Sadly, that has become more and more common, but even not hitting that low, you can see where this is going.
I know you’re all shaking your heads. The correct answer is, “no”, because his credit score took a beating during the time when he was unable to pay his bills on time. So now, after an exemplary 10-year credit history, and due to circumstances that don’t show up on his credit report, his PRESENT circumstance is that of a poor risk due to THE YEAR that he had diminished income. Did he stiff any creditors? No. Did he fail to make any payments? Nope. But because he made payments late, because he didn’t have the money, but now has the money and will, once again, pay on time, he will be made to suffer, financially.
Lord help him if he needs to borrow money for any reason now, and for the next three years, probably.
The opposite extreme is a problem as well. What if you’re one of those throwbacks to an earlier day and pay everything in cash? You can proudly proclaim that you don’t owe money to anyone and never have. Maybe you even had some great deal on your home whereby you never had a reported mortgage. You’re in great shape for credit now, right? Nope. All the credit bureaus know about you is that they know nothing about you.
I used to counsel my mortgage clients to obtain at least one credit card, charge nothing but gasoline on it, and pay the balance off in full, every month. I would also tell them to pay rent with a check or money order. Something verifiable, then come see me in a year with their established credit history.
So what does your credit report really say? That today, and for the past couple of years, here’s who you have been. Who are you now? Who will you be tomorrow? Unfortunately, that’s not something that can be seen, much less verified.
I am certainly not suggesting that you can go back in time and change anything that happened. If you could have not lost your job, you would have done everything you could, I’m simply telling you what it says about you. But don’t just take it lying down. There may be things you can do to improve your credit score now. There are many laws relating to credit reporting and a lot of them are not being followed. Utilize that to your advantage. I am aware of a requirement that collection agencies have to be able to prove the debt that they are collecting, and that sometimes, paperwork gets lost in the shuffle, so ask them to show you proof of the obligation or remove it from your report. Look, I’m not telling anyone to do anything unethical, but you had excellent credit when you had a job, and now you have a job again. Should you be punished?
Be aggressive; be assertive. Take control. It’s your life!
