The Credit Killers: Five Situations That Make Credit Worthy People Seem Unworthy
Probably the most common cause of credit catastrophe is the age-old curse of marital meltdown. When two people split up, the emotional upheaval, combined with the added stress of divorce expenses, a double household, child support, child care and a lack of clarity about who should pay which bill almost always leads to credit score catastrophe for everyone involved. Typically, though, only one of the former couple is truly responsible for any one debt. In some temporary orders and in most if not all divorce decrees, the judge usually assigns each debt to only one person. From that point on, the other party has no idea if the bill's being paid or not. In fact, since the couple generally moves apart, there's no way for one party to check on the other party's payment habits. In some situations, one spouse may even default on the bills that he has been ordered to pay leaving the other to suffer the fallout of his often malicious inactions. Even with a decree of divorce entered by a court, creditors generally hold both husband AND wife responsible for ALL joint debts and often creditors hold them responsible for debts that weren't joint debts. It doesn't matter a lick what the judge said, if both parties are cardholders (or even if both parties have used the card at some time) the creditors will try to collect from both. The credit report fails to accommodate even the simple fact that the judge has entered an order of the court assigning the debt to ONE of the two parties. Sure, the creditor may have both the husband and wife on-the-hook. But does that mean that the credit score should weigh both the same? It's ridiculous to penalize a spouse who is paying all their court assigned bills on time and in full because the other spouse jumps off the deep end. It's very common to see one former spouse file for bankruptcy just to free themselves of the debts incurred and signed for by the other person in the failed marriage. Sometimes, bankruptcy is the only way to truly finalize a divorce! And, yet, the credit scoring system is blind to fairness in a divorce. Regardless of whether or not the person was responsible for the debt, regardless of whether or not the person was paying their portion of the debts and regardless of whether or not the person was even informed of the default, the credit score takes none of this into account. Not only does this insane system hurt the divorced couple, but it takes them out of the system of credit. If a good person, who keeps her eye-on-the-credit ball and carefully makes all of her payments toward the debt she owes, is then tossed out of the credit system because an ex-spouse defaults on his obligations and becomes a deadbeat, doesn't that hurt the credit card companies? Isn't she still a good credit risk and a good customer who now is lost?
In Carla's family, hard work and discipline were a big deal. As a young woman, Carla went straight into college where she pounded out a bachelor's degree in record time. Then, she went on to graduate school where she earned an advanced degree as well. Carla took great pride in her achievements and she saw herself as proof-positive that, with some hard work, the American dream was available to anyone.
Several years after grad school, Carla and Stan met and married. With starting a family in mind, the couple found a nice home in a quiet neighborhood and they set their sights on having children.
For the next couple of years the couple worked hard to make the house their home. They did all the things a homeowner normally does: they bought appliances such as a washer, dryer and a water softener. The basement was unfinished, so they spent a little money and put some "sweat equity" into the house. The basement was beautiful and everything was ready in the home for children. They used a little credit, but not too much. Carla and Stan kept track of their bills and made sure that they could make all their payments with room to spare.
A couple of years after purchase of the house, Carla got pregnant and it looked like everything was moving forward according to plan. But, in a cruel twist of fate, Carla miscarried and the couple lost their baby. The emotions ran high during those times and both Carla and Stan battled with their dashed hopes and depression crept into the marriage. Not long after the miscarriage, the strain was too much and Stan left. It looked like their marriage was doomed and that divorce was inevitable.
But bad turned to worse when it became apparent that Stan was heading "off the reservation" in a big way. He was unwilling to pay his part of the bills and Carla had to struggle desperately just to pay the bills. Though their debts weren't overly large, Stan shocked everyone by declaring bankruptcy leaving Carla holding the bag. Though Carla was a decidedly self-sufficient woman, she wasn't in a financial position to take on the house payment and all the other financial obligations entirely on her own. Regardless of the fact that the judge had ordered Stan to pay his fair share, it was clear that bills were no longer his primary focus.
At first, Carla was late on her payments to her creditors. And, as time wore on, Carla had to set aside some loans in order to pay other loans that were about to charge off. She became further and further behind on her mortgage payment. Despite all her efforts to sell the house and to juggle bills, Carla's lender eventually foreclosed on her house.
Having lost her home and her good name, Carla went into a depression. She had always thought of herself as a woman of integrity -- as a hard-working person who always paid her own way. Now she was faced with another reality. According to her credit report, she was a deadbeat. Nothing she could do or say would convince her creditors otherwise. They weren't interested in the fact that the judge had assigned those debts to Stan in the divorce. They weren't interested in the fact that Carla had done everything possible to carry for her ex-husband's debt. And, they weren't interested in the fact that Carla was a good person with a good job and an outstanding education. All that anyone in the world of credit knew of Carla was her credit score. Five-forty-seven. Carla was reduced to that. When she logged onto the credit scoring website, it revealed that her score of five-forty-seven meant that she was a "D-." All her life, she'd never earned anything less than a "B." Now she was almost an "F."
When a person loses their job, there's often a time-lag before re-employment. Unemployment insurance sometimes kicks in and sometimes there's severance pay, but all of that isn't usually enough to pay the bills for the time it'll take to find new employment. And, even then, the new job doesn't always pay as much, since all seniority has been lost. Other factors enter into the equation as well: often, job loss is followed by a move (which then leads to bills being sent to wrong addresses) and job loss also can lead to other financial stressors such as marital problems.
Job loss frequently leads to damaged credit. Simple right? That would seem to make sense. But, when you take a closer look, it really doesn't make sense at all. Consider two imaginary limo drivers at work in Boston, Massachusetts. They both drive the same limos and even drive some of the same Boston businessmen around town, but they work for two different limo companies. Jim works for AAA Limo Co. and...
Credit Revolution: Path of the Smart Consumer 2007 John C. Heath, Esq., Dr. Randy Padawer, Jayson R. Orvis. All Rights Reserved. Published by Far Cliffs Multimedia, LLC