This may help explain some phone calls that you have received over the past two years. When someone takes your loan application they get a credit report through a credit report agency. Myself, our company Residential Pacific Mortgage and that credit report agency do not sell that information to anyone else. These agencies are companies which get raw info from the credit repositories and organize it into the credit reports which we use. However the actual repositories Equifax, Experian, Innovis and TransUnion sell the information that you are looking for a mortgage. As a result, you may receive unsolicited calls selling insurance or loans. There is no way to describe the extent to which this annoys us. We give them money to get your credit report and they sell that info to our competitors but that is our problem. I suppose that one could justify this by suggesting that making that info available to the competition encourages the borrower to get a better loan. Maybe it does. You decide. I am in no position to be objective about this.
But this enables the repositories under the Fair Credit Reporting Act to include your name on lists used by creditors or insurers to make offers of credit or insurance. In case you are not interested in receiving such unsolicited offers you may opt-out preventing consumer credit reporting companies from providing your credit file information for offers of credit or insurance that are not initiated by you.
You can do this at:
https://www.optoutprescreen.com/?rf=t
This site enables you to 1) opt-out permanently 2) opt-out for 5 years 3) opt-in if you change your mind.
Maybe I am suspicious of this whole process because I find that if you enter this site without the "https" and the "?rf=t" at the end of the URL you get sent to a part of the site that seems devoted to anything other than opting out.
All of which gives me an adequate excuse to update and present my piece on the wise use of credit.
How to Start Using Credit Cards Correctly
A long time ago - when I was graduating from college, even before I actually started my first job - I was sent applications for credit cards. They were very easy to get. They still are. Young folks getting their first jobs are introduced to the world of credit cards. Credit cards are a modern necessity but for some they become a serious problem . Credit card debt can destroy young people's lives.
This section is for people getting started in the credit world.
If you want to become a homeowner you need to have credit cards work for you. It is OK to get credit cards. It is OK to use them. The purpose in using them should be to establish a credit history. What is not OK is carrying any sizable credit card debt.
Let's say that you want to buy a new TV for $700. Do not do it unless you have the $700 set aside for the purchase. If you are not the best in the self-control department, perform this drill:
buy the TV on your credit card only when you have the money in your checking account. When you leave the store (OK you can take the TV home first but you can't plug it in yet) write a check to the credit card company for the amount that was billed.
Go home, take the TV out of the box, plug it in and Scotch tape the envelope with the check to the top of the TV. Mail it (the check not the TV) to them when you receive the credit card statement. You will have accomplished two things:
1) established credit usage and
2) not run up any debt.
Obey the following rules when using credit cards:
- use them infrequently
- do not buy anything that you do not have the money in hand to pay for
- pay off all of your credit card debt when you receive the statements.
At present, I use credit cards only when
1) shopping online
2) buying "big ticket" stuff because BofA gives me 1% back and I pay the bill immediately
3) in an emergency.
It is only in the last few years that I have broken down and used them to pay for gasoline. It is a lot easier to stick the card in the pump than to deal with the attendants at gas stations.
If you want a DVD and do not have the cash then you cannot afford it. Wait until you have the cash and pay cash for it.
If you feel that you need to get away for the weekend and do not have the money - stay home and watch TV. Watch cartoons on Saturday and football on Sunday. Play World of Warcraft all day. It only costs about $15/month.
Don't go to restaurants and put it on your credit card - pay cash. If you don't have that kind of cash - eat at McDonalds. If you cannot afford that then you really are in trouble.
Have some understanding with your spouse about that what will be spent for birthdays and the anniversary will be limited to cash-on-hand. Mutually agree that you love each other but that your love would be enhanced if you could buy your own house some day. If you are not married then be grateful that you do not have this problem.
Avoid getting a lot of credit cards. When the kindly woman at the cash register at Macy's asks you if you want to apply for a credit card and tells you that you will get 5% off whatever you buy that day - resist. She is working for Satan. She represents the forces of evil even though she looks innocent. She is out to destroy your credit. She probably owns apartment buildings and wants to make sure that you become a permanent renter.
Do not succumb to the concept that we live in a "credit card economy" and that using credit cards helps the economy. I suppose that in the 1970's people bought cocaine and cocaine dealers made money and that gave the economy a boost. In the long run neither drugs nor credit card debt really helps the economy. Those who are ruined by them become economically marginalized.
The Credit Industry
If you look on-line you will see that there are thousands of listings for credit cards, debt consolidation, credit repair, debt counseling and bankruptcy. The credit card industry has spawned other new industries.
What Should You Put on Your Credit Cards?
On-line shopping, emergencies: tow trucks, bail. Use them also as a "deposit" when traveling. You need them to make hotel reservations and to rent a car.
Debt Consolidation
I typed "debt consolidation" into Google and it said "41,800,000 pages found".
I typed "+"debt consolidation" +bankruptcy" and it said "22,100,000 pages found".
Feeling frisky I typed "+"debt consolidation" +bankruptcy +suicide"
and it said "406,000 pages found".
Draw your own conclusions.
Living With Plastic
Credit cards are a necessity. Get them. Use them wisely. Make them work for you by enhancing your credit history. Don't charge anything that you do not have the cash to pay for. Pay all credit card debt off immediately unless there is an emergency.
Not Just Plastic - Other Credit
I have seen many young people who could not qualify for a home loan because they had two car loans. If you cannot afford to pay cash for a car, keep the payment low. As a rough guide, if more that 15% of your gross income is spoken for by debt you may not qualify for a home loan.
There is "smart" debt. If you take out student loans and get through medical school that is smart debt. If you buy a car which you need to get to work or use for work that is smart debt.
For the More Sophisticated
Please understand that most (maybe all) of the advice above is for beginners. Folks who have well-established credit may seen the picture differently. They may "put everything" on credit cards for the purpose of accounting or to get some subsidiary benefit such as airline miles or cash. If your approach to credit is that sophisticated, feel free to pass this along to people who need it. One absolute rule is this: do not let any of your balances go above 40% of the credit line. If they get above that there will be a negative impact on your credit score. In short, if you are going to carry credit card debt, spread it around.
Dick Lepre
Hi Dick,
You wrote, in part -
"...can do this at:
https://www.optoutprescreen.com/?rf=t
This site enables you to 1) opt-out permanently 2) opt-out for 5 years 3) opt-in if you change your mind.
Maybe I am suspicious of this whole process because I find that if you enter this site without the "https" and the "?rf=t" at the end of the URL you get sent to a part of the site that seems devoted to anything other than opting out...."
I don't know if you'r justified to be suspicious of that site, but here's another way you can at least opt out of the phone-calls (though it won't stop Equifax from giving out the info):
Just go to
https://www.donotcall.gov
and register your phone numbers with the official goverment Do Not Call registry.
Posted by: Alex Censor | September 09, 2006 at 04:23 PM
Re credit cards, you wrote in part --
"Credit cards are a necessity. Get them. Use them wisely." And I echo all that you say, INCLUDING your postscript suggesting that if you have the self-control AND pay off all balances promptly, it may not be such a bad idea to put everything on the card, to, for example, accumulate airline miles.
Here's a footnote of something you're well aware of: Paying off credit cards at minimal payment due is a horrendous strategy that, if users really understood, they wouldn't touch with a 10-foot pole.
But call up your credit card company and ask them "If I put nothing else on my card and pay off the minimal balance each month, how long will it take me to pay off the balance and how much interest will I have paid" and they will NOT tell you that information.
However if send someone who is misusing their card to --
http://tinyurl.com/l78da
(which takes them the link "Calculator: Credit Card Repayment" on the nolopress site)
and let them punch in some numbers they'll get real eye-openers.
For example:
If this person has a $2000 balance and a minimum payment of $30, at 14% it would take them nearly 11 years to pay it down at a total cost of $3,890.23 (interest=$1,890.23).
If only the law required a statement such as "If you put no more charges on your card and pay the minimal balance each month it will take 10 years and $3,890.23 to pay off this debt" perhaps at least SOME users would not fall into the credit card trap.
An even more sophisticated calculator at
http://www.dinkytown.net/java/DebtRolldown.html
would show them, for example, that paying an extra $25/month over the minimum on $7000 of credit card debt could save them about $2400.
Posted by: Alex Censor | September 09, 2006 at 04:47 PM
I recently came across your blog and have been reading about Debt Consolidation I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Posted by: Bankruptcy Attorney | September 18, 2009 at 01:31 PM