Are you feeling the burn yet? The mortgage market is getting hammered and so is the consumer. I used to think that if you paid your bills on time, didn't overspend, stayed in your budget, and paid off something every now and then, you would build a solid credit reputation. In turn, that would give you access to the best terms available on buying a house, a car, new furniture, that riding lawnmower, whatever. Lo and behold, its not that simple anymore.
Fact is, good credit is harder to come by and becoming a requirement for more and more job seekers to get quality jobs. That's right! A bad credit rating can cause you to lose a job. Let me illustrate:
That low credit score can be translated as a warning to an employer that you don't really follow through, that you let things fall behind, and can cause them to think you might be a malfeasance risk (that means you might get desperate and take something that's not yours, like company funds). And, to be fair, if they are interviewing 300 people for a position, one of the fastest ways to eliminate people is to pull a credit report. And, that's when things can get hinky.
Have you ever searched your won name just to see what shows up? What if your name is similar to some criminal or wacko out there? Do you think a time pressured HR person is going to take the time to look further than your name. What if three other people with the same name show up on the search page and the harried recruiter jumps to the conclusion you are all one and the same? In other words, is the information on the web such that you could be taken seriously by a potential employer? Companies want to know what they are getting into when they hire someone, especially if you will represent the company and its products to the public.
So, what to do? Well, there are plenty of measures available to get the bad stuff off the top of the search engine list, beginning with publishing info on yourself. Just to keep it simple, put your professional face out there and show what you've got; publish a thoughtful article on a subject that deals with your industry; begin a blog that let's people know you are a serious thinker when it comes to your field of expertise. Use key word methods so search engines can find you and link them in to your facebook account, the company website (ask for permission first), anywhere that would benefit from your posted information. Keep it professional, keep it cool, and the next person who looks you up will get a better picture of what you have to offer. That will get you started changing your web reputation but how about your credit reputation?
Changing your credit reputation takes similar effort. First, you will want to request a copy of your credit report. Pay the extra bucks to get your credit score. Second, closely examine the information listed for correct name, address, phone, previous addresses, and so on. Note the incorrect stuff first. Is that address, two house back, yours? Or is someone piggy-backing your identity? You remember that loan you paid off when you refinanced that house 10 years ago. Was that payoff reported? Are all the accounts listed yours? Are they properly identified as to what kind of account? What about that bankruptcy filing you made back in 1998, is the final dispostion shown? Was the TYPE of bankruptcy listed correctly? That is a huge difference in the way your record is viewed. What should you do now?
You now control of your credit reputation. If you feel smart and savvy, you might be able to do this yourself. Check out the Federal Trade Commission's website dealing with credit. Many of the materials you seek are available directly. The downside is you won't have someone available to walk you through the process, and, if you make a mistake, you may never find out what it was or how to fix it. I still think that every person using or desiring to use credit as a means of purchasing, should visit the Federal Trade Commission website. But, if you need a little more help interpreting the lingo you will most likely want to find a credit education source. Here are the things to become aware of before you dive into a credit education program.
First, the products offered on the Internet range from rag-tag collections of forms bound together and with nothing more than a table of contents, to well organized, easy to read instructions with forms you can duplicate, bound in some pretty fancy covers. A fancy cover is no guarantee for the content, just like a poor cover is no indication of the value of the information inside.
Second, read the disclaimers, carefully. Do they offer a money back guarantee? Check them out with the Better Business Bureau in the city and state where they are registered. Anybody that says they want to help your reputation shouldn't mind you checking out theirs.
Third, beware of scams designed to part you with your money. I know its a pain, but according to the FTC, scammers usually request "upfront" fees to "assist" you in repairing your credit, then you never hear from them again. People have shelled out thousands of dollars only to receive a stack of forms in a big envelope. According to FTC guidelines and warnings, legitimate credit repair agencies may offer education resources for sale.
Fourth, legitimate credit education services should offer one-on-one counseling after the sale.
Fifth, remember that credit repair is YOUR responsibility as your name is the one signed on the dotted line. EXPECT to do some work like: reading the some forms, reading the instructions, call for counseling or to make sure you have the right form for the situation, fill the form out properly, and mail it properly (return receipt, registered mail, etc.). And, follow up to see real changes.
Recently, I met and interviewed Craig Dickson, owner of 2020 Credit Repair, based in Mobile/Daphne, Alabama. Craig is a mortgage banker who also provides credit repair counseling. I asked him to talk to me about the industry, what he does, who buys his services, and how people follow through on what he does.
Question: "Craig, why and what do people need to know to understand the loan market today?"
Answer: "Deregulation created a whole new level of economic pressures on lenders. Retirement funds, seeking very secure sources of income, baught heavily into the mortgage market. Banks historically bundle their loans and offer them for sale on the investment market. An aging population put more and more pressure on companies that package these loans to increase the rate of return. Investor demands for higher returns, combined with some key government changes, opened the market to previously unqualified borrowers. Lenders lowered their standards but began charging higher rates of interest. Resistance to these higher rates was offset by offers for low initial rates using variable rate loan structures. With the words, 'You qualify,' people exchanged their common sense and jumped into loans they couldn't actually afford. Qualification and affordability didn't match. Lenders bundled these below standard or 'subprime' loans for resale to Wall street, cutting them in on the higher yields. This created a recipe for disaster. Lenders know that historically, interest rates go up as demand increases for the funds available. This is a natural way to control the amount of debt people incur. However, creating a financial investment that opens up a whole new arena of investment capital is just too tempting not to try. Lenders knew, but ignored the basic principle "What goes up can also go down." They were betting on the rates going up. So were investors. Amazingly, investors don't seem to think through this process of wanting more and more on their rate of return without accepting that their own mortgage rates would have to go up to pay for it. Therein is part of the problem. Higher yields have to come from somewhere and that usually means the basic rule of "To get higher returns on the same money, you have to invest in higher risk investments." If housing only produces mortgages in the 6% interest range, and the investor gets 4% of it, but he/she wants 6%, then subprime mortgages offering investment yields of 6%-8% look good. But, what happens when the couple that buys the house for 8% - 10% through a subprime mortgage device is your own son or granddaughter? Who is really paying for your higher rate of return? You can't get something for nothing, has never been more true."
Qustion: "So, what I hear you saying is that people made alot of assumptions counting on 'The Economy' to cover their losses. Is that close?"
Answer: "Yes! But there is more to it. As I stated before, lenders knew, without a doubt, that historically, the rates dip but eventually go back up, meaning their borrowers will ultimately pay more than they thought down the road. That's why they could get away with charging a premium on the investment when they sold the mortgage bundle to institutional investors. And, with things like 'balloon notes' under which the borrower would be forced to refinance in 3, 5, 7 or more years, they created the illusion that it would be a simple matter to convert to a better, fixed rate, when that time came. Problem is, that didn't happen. Meanwhile, the borrower, saw only the relatively low introductory rates and ignored the future costs. 'I'll buy it today and pay for it down the road because things will get better, I will no doubt get a raise, and I can always find a part-time job or refinance if rates go up.' One of the faulty assumptions both sides made were that every lender operates under the same rules. The institutional investor buying for a retirement fund buys these bundles of loans and makes the same assumption. Lenders, wanting to meet the demands of stockholders as well as investors, took advantage of the situation, ignoring the warnings, thinking no one else was doing what they were doing. Now we see how foolish that thinking really was as bank after bank lines up for bailout funds.
Everybody bought 'on the bubble,' leading to some of the economic mess we are in today. All the investor sides of the equation were willing to push the envelope on subprime loans, counting on everyone else doing what was right; to hide their schemes and to keep the market inflated. But, suddenly, a major employer let 40,000 people go, then another, then another, then another, and then a a million workers were unemployed; things got tight real fast. At first, everybody figured it was just a 'bump' and they could ride things out. I think, at times like this, we are all optimists. Problem is that the philosophy of optimism is circular logic at its best. If I think good thoughts then good things will happen to me. What if two people are thinking bad thoughts about the same situation at the same time? Who gets the credit when its good, when its bad? You can't build a life based on ungrounded optimisim, that's just fanciful thinking. We saw alot of that over the last 10 years. But, the 'bubble' finally burst. Someone noticed the emperor's new clothes didn't exist and even the emperor had to notice eventually.
Joe Anybody goes six months without a job. He gets behind on a few things, and now the bank is talking about foreclosure on his home. In desperation, Joe packs up his family and moves into an apartment, hoping nobody will check his credit. He makes it, but a thousand others don't. Joe let's the house go because at least he has a roof over his head and his family is in one piece. But, he still has to get a job. Joe finally gets an interview and goes to meet with the company recruiter. There he discovers they want to pull his credit report as a condition of employment for the position he wants. The foreclosure sale for his former home was been reported showing Joe walked out on a $148,000 balance. Three other three creditors turned him over to collections for unpaid debts. What do you think the recruiter sees? Can you blame her? She has three-hundred other people to interview and they don't have Joe's problem. Joe goes home completely depressed but while searching for another job sees an ad for a credit repair agency that works with a mortgage company. They offer to train him. They educate him on hos to manage his credit reputation; showing him how to improve his credit score. A few months later, back on his feet in a new job, he is actively working to repair his credit. Within a few years, he is in an even better job, has been approved for a home loan, and has laid down sound financial habits that will make up for all the years of floundering around without a plan or the training to change his circumstances."
Question: "In your opinion, what sets you apart from anyone else in the credit repair business?"
Answer: "First, I want you to know that there are alot of people out there who CAN do what I do. I think professional people DO exist in this business and they DO care about helping others. Second, I don't think an experience with a scam artist should keep someone from finding qualified assistance. You wouldn't stop getting your car fixed if one mechanic overcharged you or didn't actually do what he said, would you? No, I think people just have to wise up and take ownership of their lives. I believe so many people are in the mess they are in because they got used to believing everything they were told without checking the facts; not taking responsibility for knowing enough to ask the right questions. In my experience, most fraud committed on the consumer is a byproduct of consumer ignorance. Scammers play on people's pride, appealing to their sense of right and wrong, but with no intention of honoring that standard. Face it, most of us project onto others what we see as our own best traits, like honesty, integrity, trustworthiness. The true scam artist recognizes people who are basicaly goodhearted and target them. I'm not saying people should stop being trusting, I am simply saying that you should trust AND verify before you invest in anything major.
People act so shocked when they discover they have been taken. In some ways, I think their sense of betrayal is directed back at themselves for being so gullible but they have to blame someone or their pride couldn't take it. I think you can only be responsible for not doing YOUR homework, not for the other guy's evil nature. I'm no psychologist but that's what it looks like from my chair.
A second reason I think I am different is that I really do care about people. Nearly everyone that has purchased my credit education program was a former loan applicant who couldn't qualify because their credit report was a problem. I walked these clients through the basic requirements for loans: Time on job, income, credit report, loan to debt ratios, and so on. I showed them how paying off some other debts would make them more attractive lenders, where they could call the shots. I explained how certain local revolving charge accounts work against you and how paying off major credit cards may not be to your advantage. In other words, I showed them everything they needed to make an informed decision. After all, I wanted these folks to come back and qualify for a loan, be able to afford it, and know what it will take to keep them on track financially. As a result, over 300 clients in the last year or so, came back and placed their mortgages with me. I go to bed at night, satisfied that I did my best to help people.
Sometimes, this involves helping clients create a debt reduction plan. I help them stay on target through weekly and monthly counseling, and teaching them principles for life; and that usually involves teaching the principle of delayed gratification. You don't get that kind of expertise just buying a notebook or envelope of forms. People want and deserve genuine customer service. I make my living from mortgage banking. I get my joy through seeing people repair their finances and get on track for building wealth. Those are the things, in addition to my experience and knowledge, that I think differentiate me from some of the others. I'm sure there are folks out there who are sincere and I applaud them for working so hard to help others. I don't need to say anything about those folks who don't really care about others. They have to face a final Judge."
Question: "Craig, what do you look for on a person's credit report, to dispute? Is there a rule of thumb or something you use to guide you?"
Answer: "First, not everything on a credit report is worth fighting over. That's just good advice anytime. A friend of mine always said, 'You should carefully choose your battles; choose the one's you honestly believe are worth winning; then fight to win.'"
Question: "How much difference does a high credit score make? Could you give me a concrete example?"
Answer: "Okay. Answer me this, which would you rather pay on a $100,000 home? $599.55/month for 30 years at 6.0% totaling $115,838 in interest? Or, $1,086.69/month at 12.75% totaling $291,210 in interest? That can be the difference between a poor credit rating and a great credit rating; the difference between a mid-score and a high-score; literally thousands and thousands of dollars."
Because of the multitude of products on the market I recommend everyone spend a few minutes on the Federal Trade Commission website. They clearly define what to look for in genuine credit repair services. The Fair Credit Reporting Act created this remarkable service industry that is still in its infancy stage. If you decide to take advantage of the services offered by credit repair companies, make sure they have something more than words and a request for thousands of dollars to offer. Spend an hour or two researching the business you choose to work with and get a jump of your credit reputation.
Sam Shorrosh
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