ADVANCED CREDIT STRATEGIES - Part one

We have been discussing various sub-topics of the broader category of credit. To view those articles scroll down or check out the archives section in the right hand column. Most of the information comes from my newest book, Stop Flushing Your Money Down the Drain. Now we are going to explore advanced strategies for maximizing your credit score. If you learn these things you will be better prepared to deal with your credit and credit score for the remainder of your days.

Managing your credit is a lot like taking a shower. You will function better within our society if you make it an ongoing practice.

I suggest you make some sort of action-plan. For example, once every four months obtain and review your FICO credit score. (Note: If you didn’t obtain your FICO score when earlier suggested, I urge you to do it NOW! www.myFICO.com/12). After you review it, make a list of whatever you need to do and establish time lines to do them.

Following is a list of 16 items, in alphabetical order, which will assist you to build and protect your score. The worst your score is the more these things will help you. Once your score gets to 750 or so, your efforts and improvements will be of only minor benefit, but that does not mean you are done. The stronger your report, the better it can withstand problems like inquiries or a random late payment. Be patient but persistent. With consistent effort you should be able to join the exclusive “800 club” and find yourself among the top 5% of all consumers.

Adopt a New Attitude – You should only allow creditors that you interview and approve to have access to your report. Here are the things you should ask potential creditors BEFORE you make formal application and allow access to your information:

1. Which credit bureau(s) do you use?
2. Do you use FICO scores to determine my risk/
3. How does negative credit (bankruptcy, repossession) affect your decisions
4. What is the minimum FICO score needed for approval?
5. What is the minimum FICO score needed to get the best rate?
6. Do you report my high limit and my current balance?
7. Do you report my activity to all three credit bureaus?
8. If I give you a copy of my current FICO score and credit report, will you get my loan approval without any additional inquiries? (If the answer to this question is, “No” ask the next question)
9. If I give you a copy of my current FICO score and credit report, will you get my loan approved ”subject to verifying that the score is accurate”? (Note: This assures your loan is approved prior to any inquiries being entered on your report.)

Closing Older or Inactive Accounts - It is not usually a good idea to close old accounts or other accounts that you do not intend to use any longer. Lenders like to “average” the age of your accounts, and the older the better. However, if you have such an account that has an annual fee and you have a score above 750, you might contact the lender to find out if they would restructure the account to exclude the annual fee. If not, the damage from closing the account may be minor.

Cosigning - Do not get in the habit of cosigning for other people. It is very risky, no matter whom you are trying to help. If they default, you are responsible for the debt. You also expose your score to any of their actions or inactions such as late payments. Even if they pay on time, they pull your score down because they lower your debt to income ratio. If your score comes down, your own ability to qualify for later credit might be in jeopardy. Furthermore if your insurance company gets wind of your FICO Credit score dropping they might raise your insurance premiums. In my opinion it would be better to lend them your cash than your credit.

Credit Cards vs. Cash (and checks) – Paying with cash can actually hurt your credit scores because your creditors have no way of knowing that you pay back your debts. Whenever you have an option, you should pay with credit cards instead of cash or checks because paying back those debts builds your credit score. This is especially true if your card offers cash-back or other bonuses. You can even build your credit or accumulate freebies by paying somebody else’s bill with your card and collecting cash or a check from them.

Credit Unions - Credit Unions tend to be more liberal in their lending guidelines, but the majority of them do not report to any bureaus. So use them if you will have trouble qualifying for a traditional loan or if you wish to hide a debt from your credit reports, but, if you want your good habits to be reported, do not use Credit Unions for loans. Obviously you should verify their philosophies before you decide if they are right for you.

Debit Cards - Debit cards are not the same as credit cards. They are just plastic checks.

Department Store and Other Retail Cards – These stores can be a good place to get a credit history going, but after that, do not apply for these cards. They frequently come with annual fees. Their interest rates are high and you cannot use them for other purchases. If you apply to several of them on one weekend, each inquiry counts against your credit score (the 45 day rule does not apply). That can lower your score substantially for one year and raise your insurance premiums. They will try to offer you a one-time 20% discount to get their card but resist the temptation and use your VISA or MasterCard instead.

Divorce - Do not be cavalier about who pays what. In most cases you are both responsible for any debts you took on jointly, even if just one person agrees to take over the debt. If a court orders your spouse to pay a joint debt, that does not remove your obligation as far as the lender and credit bureau are concerned. Try to get the lender to release you, in writing, or refinance the accounts into the proper person’s name. It may even be better to take on all of the debts yourself, rather than expose yourself to years of bad credit because your ex does not look upon your score with the same seriousness that you do.

Explanation Letters - You have the right to explain anything on your credit report and it might make you feel better, but such explanations do not affect your score. Very few lenders read them anyway. If you feel a need to dispute something, your time will be better spent by going directly to the creditor who reported the activity in the first place. If needed, you can hire an attorney or a credit repairing company to help you.

Finance Companies – Your FICO score likes banks a lot more than finance companies. Finance companies usually (but not always) include the word “financial” in their name. Having any loan at a financial company can actually lower your score. Avoid them.

How Income Affects Credit Ratings - Ordinarily, your income has nothing to do with your credit score. High income, raises, bonuses etc. will not overcome poor credit. It illustrates your capability for making payments, but it does not indicate whether you will pay your bills on time or at all.

Inquiries – There are two basic types of inquiries to your credit scores. One type is relatively harmless but the other one poses more risk to you. If someone is checking you out just to find out if you are a responsible person, like a potential employer or an insurance company, there is little or no affect to your credit score.
But, if you knowingly give a lender or anybody else your social security number or apply for credit, their inquiry can bring down your score. People with scores above 750 do not have to worry about this very much because they will only lose a few points, but people who are just starting to build their scores or pose other risks might see drops in their score of 10 points, or more. Credit related inquiries remain on your report for two years, and count against your score for one year
Ordinarily, all similar inquiries within a 45 day window count as one inquiry. The system understands that a person might be “rate shopping”, so bunch similar inquiries together to prevent unnecessary damage to your score.
To reduce or avoid unnecessary inquires, obtain your own current copy of your credit report and FICO score, and then provide that to lenders yourself for review prior to formal application. Your inquiry of your own score does not count against you.

Lag Time – In a worse case, it may take up to 60 days for changes to show up on your report after they are received.

Late Payments - Know what constitutes a late payment with your creditors. Sometimes you have a grace period but sometimes not. It is not just a matter of when late fees kick in. You want to know about their reporting practices.
Recent late payments or a pattern of late payments will be more damaging to your report than a late payment in the past. When a lender reviews your payment pattern they can recognize that one late payment is an exception to your usual good habits.

Limit Reporting - Some lenders do not report your “limit”, or even worse, they report your current balance as your limit. This implies that you are stretched financially and brings down your score. You should avoid these lenders.

Negative Comments – Do not allow negative comments to invade your credit report. These include collection accounts, judgments, deed in lieu of foreclosure, write offs, repossession, negotiated settlement, accounts included in wage earner plan, bankruptcy, negotiated settlement, and FED actions (financial arrangements with tenants facing eviction). These comments lower your score and paying them off will not raise the score back up. If you pay such an account after it shows up on your report you are stuck with it as negative information on your report for 7 years. Work with lenders to remove such comments or hire an attorney or credit repairing company to help you remove these types of comments ASAP.

I will post the second half of this list in a few days. Be sure to come on back.

Don't forget to check out my other blog

CREDIT: STARTING OVER

We have been discussing various aspects of credit issues. Most of the information is right out of my new book, Stop Flushing Your Money Down the Drain. This particular article is dedicated to those who are wrestling with poor credit or considering bankruptcy.

BANKRUPTCY
Nobody wants to go through this situation, and it should be avoided if possible, but if you find yourself in a credit hole that you cannot realistically expect to resolve for three years or longer, it may be your best choice. The first thing to do is consult with a credit counselor or a qualified bankruptcy attorney. If you do elect to go this route, do not make things worse by beating yourself up.

It does not benefit society to punish people who have struggled financially, so laws are in place to give people a second chance at productivity. Lots of good people have had to go this route including four past Presidents and this author.
Once the bankruptcy is over, it is not overly difficult to get new credit established. With prudent action, a person in this situation can usually obtain new credit to buy a home and car in one to two years. Thereafter, responsible behavior will pay dividends, just like it does for everybody else.

To get back in the game, follow the steps later in this chapter called The Starting Gate.

CLEANING UP BAD CREDIT
Perhaps you are struggling financially, but not so badly as a person who goes the bankruptcy route. For those with serious, but less dire, circumstances here are the basic steps to clean up your credit reports.

1) First things first. Take your financial temperature by getting a copy of your FICO credit reports (www.myFICO.com/12). Examine the report in detail. Dispute anything that you think you can improve such as debts that are inaccurate or not yours (see previous chapter for details). Pay special attention to the four reasons your credit is suffering. Take any immediate steps that you can to address those issues and especially whichever item they have listed first. Write a quick letter to the credit bureaus to clean up any inaccurate personal information such as marital status, address, and employer.

2) It is better to spread your credit card debt out so that no one card is overly burdened. For example, if you have three cards, each with a thousand dollars in available credit and one card is maxed out while the other two cards have a zero balance, it would be better to shift the debt so that each card is carrying one-third of the debt. Generally, you do not want your balance on any particular card to exceed 30% of the available credit. If you are still over the 30% balance, contact your lenders to see if they will raise your credit limit. This will usually increase your score.

3) If you have equity in your home or other property, consider consolidating your debts into one larger loan. This seems like a contradiction to the previous paragraph, but real estate loans are treated differently than consumer credit. There are several other benefits: You should get a lower rate; you can probably make lower payments; and the interest is probably deductible on your income taxes.
Unfortunately, I have seen MANY people abuse this tactic. The ink is barely dry on their loan documents and they go out to dinner to celebrate. When the bill comes they pull out their credit cards… again!!! Before long they have the same problem, only this time they also have a new and bigger debt on their home to go along with it. Refinancing is very dangerous if you do not modify your spending habits because sooner or later real estate values won’t be able to bail you out. Then you might lose everything you own.

4) Lenders are eager to overcharge anybody who is willing to pay a higher interest rate than the lender is willing to accept. Be certain you are not among that group. Call you creditors and ask them to lower your interest rate. They will frequently do so right on the spot, simply because you asked. This exercise will lower your payments. Repeat this procedure every 90 days or until you are certain they will not lower your rates further.

5) If you have any fees such as over-limit fees or late-payment fees, call your creditors and ask them to waive the fees. If you have been a customer for several years, and you have a decent long-term record, you have a good chance of getting these fees waived.

6) Cash-out other accounts. If you have an IRA or a stock portfolio or other path to cash, consider tapping those accounts to pay off your debts. It makes no sense to have one account paying you a small interest rate (which is taxed) while you have your own debt at an even higher rate.

7) Modify your behavior. If you cannot pay your cards in full every month, put them away and make other sacrifices. Keep modest amounts of cash on hand instead of credit cards. That way you will guard your cash carefully (Note: this technique will not do you any good if you constantly run to the ATM to make up the difference),
Depending on how serious your problem is, you may need to get rid of a car that has payments and drive a clunker with no payments. Sell any frivolities such as a boat, an unnecessary vehicle or raw land that you might have. Use the money to pay down your debts.

8) Renegotiate your debt. If the above items are not enough for you to solve your problem, you can contact your creditors (not collection agencies) and restructure the debt. You usually have to be behind on your payments to convince them this step is necessary, otherwise everybody would seek such relief. If you elect to go this route, the creditor will likely post a derogatory comment to your credit reports indicating what happened. That negative remark will stick with you for a long time, but you can recover, usually within a year or so.

9) Adopt a new philosophy about credit and debt. Do not use your cards to buy anything if you cannot pay off 100% of the purchase when you get your next statement. Never, ever carry a balance on your cards.

10) Monitor your accounts forever. Paying attention and keeping score will keep you from getting into this problem again. But more importantly, it will free up money you can use in much smarter ways: Namely, to Save Consistently and Invest Wisely.

Oddly, it may be better to file for bankruptcy than take the slow path to recovery, as just spelled out. Creditors sometimes consider people who have filed for bankruptcy to be less risky because the process leaves them with fewer debts, and they cannot repeat the procedure for quite a while.

Your comments are welcomed

Be sure to stop by my other blog

YOUR CREDIT REPORTS

Did you know you have lots of credit reports? Why are there so many? Are the "free" ones any good? How do you get copies of the "right" credit reports? How do you fix a credit report?

We are exploring some of the data from my book about credit (see previous article, below). This article is about your many credit reports, themselves.

INTRODUCTION
Now it is time to make a transition from the “philosophy” of credit to the “mechanics” of it. Fortunately, somebody else will assemble all of the information for you, but it is still up to you to constantly review those reports and make effective changes as needed.
The next few chapters have the potential to change your financial life. This information is vital to your monetary success. It is simple but not easy. It takes knowledge and effort. Please believe me when I tell you that the people who employ these lessons enjoy very productive and satisfying economic lives.

THE GUTS
By understanding some of the specifics that lead to our credit score, we can make this dynamic tool serve us for all the rest of our lives, rather than the other way around. To begin with, let’s observe how much emphasis is lent to the various aspects of the reports themselves.

Recent Payment History – 35%
The single most important factor in determining your score is Recent Payment History. Any recent late-payments or on-time payments are weighted more heavily than those of years gone by.

Length of History - 15%
This category is different from the one above because it is concerned with how long this person has been managing his/her credit. Obviously longer is better. When combined with the previous category, we can see that fully one-half of our reports are based on our history, in one way or the other.

Amount of actual debt - 30%
Oddly, a lack of debt can actually lower a person’s credit score. That is because it is difficult to determine if this person actually knows how to handle credit at all. On the other hand, the person who rings up a bunch of new debt also appears risky. The trick is to slowly and consistently accumulate available credit without ever owing more than about 30% of the available amount.

New credit – 10%
It is an ironic fact that new credit diminishes our credit scores while our older and established credit enhances them. The obvious question is, “How the heck are we going to get solid established accounts if we don’t start out with new accounts?” The answer is, “You can’t.”

Type of credit - 10%
This part of the score is based on types of credit in use (retail, finance company, mortgage, auto). Short-term unsecured debt generally carries more risk than secured loans like real estate mortgages.

WHO ARE THOSE GUYS?
One of the all-time classic movies is Butch Cassidy and the Sundance Kid. In it, Paul Newman and Robert Redford are a couple of lovable bad guys who just can’t get away from the grasp of the relentless authorities. After all sorts of running and frustrations, an exasperated Butch (Newman) turns to Sundance (Redford) and gasps, “Who are those guys?”

In a similar way, you and I are to be forever pursued by a gang of determined credit reporting agencies. The primary gang members are Equifax, TransUnion and Experian. They are not affiliated with the government and they operate to make a profit by selling their products and services. There are many other members in the gang, who also gather and sell information on credit matters. There is even a company called Payment Reporting Builds Credit, Inc., which allows the public to report their own payments for items which are not customarily included on the reports of the better known credit bureaus (phone, cable, rent).

All three major bureaus provide a credit report and TransUnion provides two different types. No two reports are identical. Equifax and TransUnion offer FICO scores which are used in more than 75% of all loans. Mortgage companies review both FICO reports in their lending decisions, but other creditors (credit card, auto loans, retailers etc.) usually prefer one or the other and tend to rely almost exclusively on that particular one.
Experian and TransUnion each have a separate internal report and score. They aggressively try to market these own internal products, presumably because there is more profit in it. Equifax has no such alternative report.

Auto dealers have their own secret scoring system. They use a FICO Auto Industry Option Score. Once again, the scoring is similar to that of the standard FICO score, but they look more closely at how you handled previous auto loans. If you have had other financial problems, but always handled your debts regarding your auto loans properly, you might actually get a lower rate on an auto loan than you would have suspected. On the other hand, there is nothing stopping a dealer from reviewing your entire credit situation and then using other bad credit against you anyway.

Certain other industries have their own alternatives to the FICO system for their types of loans. They are called Non-auto Installment Industry Options. They include Bank Cards and Installment Loans (furniture, electronics etc.). These lenders treat their scoring system similarly to the auto dealers, with extra weight given to the items on your report that relate to their particular products.

CALL TO ACTION
You are entitled to one free consumer report from each of the major bureau every 12 months. You can get them at www.AnnualCreditReport.com. However, those reports do not provide the FICO score, which is what you really want because so many creditors use those particular scores.

You can also purchase three-in-one or “merged” reports, but I don’t recommend them either for several reasons: Too few creditors use them; they are expensive; and they are more difficult to read.

That brings us back to the FICO reports. The only way to obtain your FICO reports is to purchase them, so I recommend that you purchase copies of your TransUnion and Equifax FICO scores. They cost less than $20 each. You can get them at www.MyFICO.com/12.

As stated earlier, Experian no longer offers FICO scores so they only have a non-FICO report. However, you might want to get their report anyway, just to be certain it does not have any damaging information that you should know about.

Important: Regardless of your financial condition, I suggest you stop everything else and go order your exact FICO scores RIGHT NOW! You will have them on-line within minutes and you can print them out if you wish. Then you will be able to begin improving your credit score by implementing the recommendations in the next chapters. But do not put it off. There is no benefit in waiting. Go ahead, I promise to wait for you.

Remember, you want the FICO scores from TransUnion and Equifax (here is the website again (www.MyFICO.com/12). The non-FICO score from Experian is optional.

THE PAYOFF
Once you obtain your FICO reports, you can determine who has been checking you out. You will also look for errors you can correct and what areas need improvement. You will find out if you have been a victim of identity theft. You can verify if your lenders have been reporting your good behavior. Be sure to check all current accounts and verify accuracy. You will probably notice that the reports do not all have the same accounts listed. You will want to notify them of any good accounts you have that might be missing on their reports.

You will observe several rows of tabs running across the top of your report. Notice the row with tabs numbered one through nine (1-9). You should review all of these sections.

NEGATIVE REASON CODES
Click the tab marked “Understanding Your Score” (Number 2). This could easily be the most critical section of your reports. You will have up to four very specific things you can work on to improve your own particular credit score. They are listed in order of how important they are to your score, and they will tell you what to do about it. Begin fixing them, in order of importance. For example, if you have too much debt for the credit you have available (too high of a balance on your cards), you know to pay down your cards or increase your available credit.

INQUIRIES
Click the tab marked “Inquiries” (Number 6). Here you will discover who has been checking you out. If you do not recognize their names, you may need to perform a web search. For instance, my life insurance company does their investigating under a name I did not know.

In many cases, but not all, these inquiries can pull down your score, so keep an eye on this section. Generally, an inquiry by anybody who just wants to learn if you are responsible or not (insurance companies, employers, etc.), will not hurt your score. But, when you have applied for credit or somebody is looking to extend credit to you, your score is vulnerable.

If you see inquiries in that latter group, which you did not authorize, you should send then a letter and demand that they either prove they had a “permissible purpose” to investigate your report, or remove their inquiry.

BECOME YOUR OWN ADVOCATE
Click the tab market “Accounts” (Number 5). The specific information provided in this section will enable you to see if there are any accounts you can improve or upgrade. For instance, one of my credit cards accounts showed my unpaid balance, but it did not show how much available credit I had; so, it appeared I was using all of my available credit, even though I was only using 5% of it.

Verify the information for all of your accounts. If you find negatives on your report, you can dispute them for any reason. If you had an unfair bill that you refused to pay, but now it shows up as a collection account, you can write a letter to the bureau involved and dispute the charge as “not yours”. They are obligated to verify with the creditor that the entry is legit. Sometimes they are unsuccessful in contacting the creditor or getting a timely response, in which case, they are required by law to remove the negative comment from your report. If the creditor reaffirms the information, the bureaus will not modify your report unless they made some error of their own. They will notify you of their findings and make changes where appropriate.

Your next step, and best bet, is to go directly to the source of the problem. That means the lender or creditor (not a collection agency). Send a certified letter to whoever is authorized to review such matters. Do your homework and provide any documents that support your case. Remain civilized. Be sure to tell them exactly what you are asking for; “I would like you to withdraw the account from the collection agency and correct all three credit reports.”
Many lenders/creditors will grant one such correction per year as a gesture of goodwill. Sometimes they will even erase several old blemishes if you have a solid year of on-time payments. If they agree to your request, be sure to verify with all of the bureaus that they made the corrections.

DOES NO REALLY MEAN NO?
Just because you get turned down is no reason to give up. Wait a few months and try again. There are all sorts of examples of creditors removing bad marks after repeated requests. They find the small accounts, the old accounts and the ones with similar names are just not worth fighting over. Sometimes they change their minds or put a new person in charge or just don’t care enough to keep fighting. So stick with it. If you are still unsuccessful after several attempts, you can hire a credit repairing expert or an attorney to take up the battle. If you are serious about cleaning up your credit reports, this is worth the time and money.

COLLECTIONS AND PUBLIC RECORDS
Collections are accounts that have been turned over to collection agencies. I suggest you discuss these account with the lenders themselves and not the collection agencies. If you get an inheritance or a nice raise, and if you are willing to pay a substantial portion of what you owe, they may be willing to remove the accounts from collection status. If so you should see a good improvement in your score.

Public Records indicate any relevant legal proceedings. This includes judgments, bankruptcy, foreclosures, repossessions, tax liens or garnishments. Most of them will stay on your report for 5-10 years, but a tax lien will remain as long as it is unpaid.

OTHER TABS
Be sure to check out the remainder of the numbered tabs. There may be specific issues you can work on to improve your score.

IS IT WORTH THE BATTLE?
When it comes to your final FICO score some of the errors on your reports matter much more than others. In fact, some of them don’t matter at all. Generally, your time is well-spent if you are disputing things like late payments, collections, accounts listed as anything other than “Current’ or “Paid as agreed”, as well as any credit limits that are reported as lower than they should be, charge-offs, anything that is negative and not yours, any negative comments that are more than ten years old, and any accounts that were paid off or written off in a bankruptcy but still show up as unpaid.

Most inquiries are relatively harmless unless there are a bunch of creditors like car dealers and unfamiliar banks snooping around. If you see inquiries like that or accounts that don’t make sense, you may be the victim of identity theft. In that case, notify the fraud departments of the credit bureaus and they will tell you what to do from there.
Most other mistakes such as an incorrect spelling of you middle name or the address of your employer or who closed an old account should be updated, but they don’t usually play any role in your score.

CONCLUSION
Finally, your score will be constantly changing so you should regularly obtain new updated copies of your TransUnion and Equifax FICO scores. If you discover more than a handful of mistakes on your report, you may need to get an updated report once every quarter for the first year. Once you have things cleaned up, I suggest once every six months after that. Get the free Experian score once per year.
I suggest you establish a tradition or HABIT of an annual review on your birthday or new yeas or tax time or some other trigger-date that will be easy for you to remember.

Now that you have your credit reports in hand, you are ready to learn the secrets of building a much better score. We will discuss that next time.

Comments?

Be sure to check out my other blog about Human interest stuff

RETHINKING CREDIT

My upcoming book, Stop Flushing Your Money Down the Drain has a strong section on credit issues. There is something useful for everybody including the best place to get your credit report to establishing credit in the first place to advanced techniques that will build a dynamic credit score in short order. I have elected to share a few excerpts with you. Here is a little section covering why I think people ought to be required to take a Credit Test before they receive any credit at all.

YOUR CREDIT AND YOU

Do you have car payments or a student loan? When you use your credit cards, do you get benefits such as frequent flier miles? How often have you refinanced your home? Do you pay off your credit cards every month?

Naturally, most people never give much thought to credit until they are confronted with an opportunity to buy something for which they do not have the money. Department stores, gas stations or cell phones can all be the starting point. The new consumer jumps in without much guidance. The first payments are relatively small compared to the benefits. It all seems so easy and painless, and before long the little card is like a Christmas present that just keeps on giving. But, credit can be very fickle.

Credit can be like a best friend or a worse enemy. It can allow you to take advantage of bargains, and thereby pay less for goods and services, which you already buy. But credit can also be a curse, stalking you, tempting you and stealing away your resources and your future. It can be an addiction, just as damning as alcohol or drugs or gambling. It is a like a powerful saw. In the right hands it can build an empire, but when not used properly, it can cut off the hand of the operator. One thing is for sure: Credit is not “free money”.

HOW IT OUGHT TO BE

Nobody ever asked me, but if I had my way, I would require that all consumers take some sort of preliminary credit-awareness course, and a test, before they are granted credit in the first place. It would be similar to the driver’s license procedure. I suppose if the idea was presented to the Congress or a local Governor, one might hear something like, “There is a big difference, because automobile drivers can hurt other people and property, but credit does not pose the same risk to the public.” Naturally, I do not agree.

When adults get into credit problems, which they cannot handle, families get destroyed. It is often stated that half of all marriages end in divorce and most experts agree that the number one cause is financial hardships. Inevitably, the children are forced to change schools, abandon their friends, adapt to more humble surroundings and live in single parent situations.

All of this leads to bankruptcies and foreclosures, which in turn, means more vacant homes. Basic economics tell us that when the supply of houses is increased, the prices come down; and that affects everybody in the neighborhood. Foreclosures also cause lenders to charge everybody else higher interest rates and loan fees to off-set their losses.

On a grander scale, the entire country was brought to its collective knees when the housing market crumbled recently. Nearly every one of us suffered as housing prices dropped. Trillions of dollars were lost. The Banks closed and countless Americans saw their stock portfolios wither away. The Federal Government took on record levels of debt as additional trillions were created out of thin air for bailouts. All of the new National Debt will be thrust upon future citizens, many of whom are not even born yet. Higher interest rates and hyper-inflation threaten us. We have had a very severe recession. To add more fuel to the already raging fire, many other nations are worried about the financial strength of the once strong America and there is even talk of a world-wide depression.

All of that was because government officials and consumers themselves did not understand how easy it is to abuse credit. So, I say it again, “If we require a test and a license of drivers, because they might hurt somebody else, we should also require consumers to have some basic understanding of credit for the same reasons.” The first class of students should be comprised of congressional members and other government officials.

Comments are welcomed

Next up: Fun Historical facts about credit

Visit my other blog, mostly human interest stories