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Are you making the right
decision?
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Recently I was asked by a consumer, whose credit
scores were well over a 750 with NO late payments, if he should
settle his credit card debt for less than the full balance? My
first question to him was, "why do you ask?" If he would
have blindly settled these accounts he would have ruined his credit.
About a year ago a woman was referred to me by a banker.
She had visited with him about six months prior and was preparing to
buy a home. She had excellent credit, 785 scores, and a very
good income. Right before she went back to the banker to fill
out all the applications she had been given advice by a family
physician. He told her she needed to close all her credit card
accounts since they would hinder her ability to get a mortgage.
The bank, she was told, would only give her a mortgage based on her
income and they would include her existing limits on credit cards as
debt she owed. She immediately went out and closed all her
credit cards. Her score went down over 100 points and she was denied
the loan.
Last week I went to see a new Dentist and in passing he asked
me what I did for a living. Once I explained the nature of my
business he went on to describe his predicament. He is
underwater on an interest only loan he took out in the height
of the market. The loan is adjusting and his mortgage payment will
be going up dramatically. His income has dropped and his
balances on credit card debt are extremely close to his limits. He
asked his bank to modify his loan and they refused. He tried to
refinance out of it but he doesn't have enough income, on paper, to
qualify for the loan and his score has dropped because his balances
are so close to the limits. "Why won't they modify my
loan? I have always paid on time?" he asked.
Situations like these appear every day in our office. The
answer to each one is different, of course. Every situation is
different, every consumer is different, and every credit report is
different. Each case needs to be looked at with the full facts
of each consumers income, future plans, and current problems.
The first consumer we will call "A." Consumer
A, after learning more about him and asking why he
was thinking of settling, discussed that he heard it is a
good idea from friends and some commercials on the radio. I
asked him if he is willing to ruin his credit for the $50,000 he
might save? His answer was "I didn't know it would hurt my
credit." Are you ready to pay taxes on the
savings? Will you be buying a home or refinancing a
mortgage loan in the next few years? By the time we finished
discussing this he was not going to settle his accounts. He is
earning well over $300,000 a year so saving $50,000 was not worth
ruining his credit. He was referred to me by a banker who was trying
to help him refinance a loan within the year, so why would he want to
ruin his credit?
The second consumer we will call "B." Consumer
B should have never listened to her Physician when it came to credit
score advice. Would you ask a mechanic about Brain Surgery?
This is a common mistake and unfortunately it really ruined B's
chances for getting a mortgage. She has to wait 2 more years to
build open active credit after closing all her accounts. She
needed this seasoned credit to get the mortgage she wanted. The thing
about aged credit is you must earn it over time. Once you close
accounts not only are you dropping your scores substantially but you
are also taking away your active aged credit. The Physician was
advising her based on old outdated rules that no longer
apply. If only she would have asked someone with a credit
background before she acted on this poor advice things could have
been different.
Consumer "C" is my Dentist. His situation was
the most complicated but my first question was, "Why would your
bank want to take less money when you have been paying them the full
mortgage payment on time continuously?" There
is no real motivation for them to work with him on the loan
modification. The other facts I needed to know were; What
income are you really earning? What is your property worth in
this market? How much credit card debt do you have in
total? Have you looked into a Short Sale? Do you have late
payments on your credit report? Do you own any other
property? Are you the only one responsible for your current
mortgage? Have you spoken to a bankruptcy attorney? Will a
relative co-sign on a refinance for you? The answers to these
questions are imperative in deciding the right plan or
choice. If C's credit is damaged and his credit card debt is
very high he may want to consider bankruptcy and a short
sale. If he does a short sale his credit will be updated as a
settled account and his score will drop dramatically. With this
knowledge it may make more sense to include all of his other debt in
bankruptcy instead of settling. Why pay his credit card debt
when his credit will be a mess anyway? He may be best served to
include all his debt in a bankruptcy and start fresh a few years
after the bankruptcy. We can work on cleaning up his credit 2
years after the BK is finished. If he chose settling his
debt he would still have to pay taxes on his savings. If he owns
another property this BK choice would be out, so getting all the
facts is a must.
I hope this gives some insight into how important it is to
know the facts before making decisions. Asking the right
specialist can make the difference between significant dollars and a
better quality of life.
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NEW!
Do You Have Any Questions About Credit?
Ask Tracy!
ask@northshoreadvisory.com
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Call
Now for a
Free
Credit Education Seminar!
914-524-8300
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"Great credit brings
great
opportunity!!" Copyright
2010
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Call
Today for a Free Credit Education Seminar!
914-524-8300
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Do
you know how a short sale effects credit scores?
Do you know how many years a bankruptcy remains on a credit
report?
Do
you know how settled accounts effect credit scores?
Do
you have ALL the answers??
Call for your FREE Educational Seminar!
This training includes indepth education on each of the credit
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will also educate your management staff on credit, the unknown dangers
of credit score reduction and the ways to help your clients have peace
of mind and get the credit they need.
Contact NSA Today!
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Featured Testimonial
North Shore Advisory was referred to me by a loan
officer who told me I had a long and extensive battle to fight. I had
been unemployed three times, got divorced and lost my home while
attending several (3) court cases. I became homeless and had no other choice
than to be at the mercy of others. I didn't want to file bankruptcy
because I had every intention of paying all my debt. However, creditors
could care less about your financial and emotional stress. They
just want their money. The professionalism and caring you get from
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Advisory.
North Shore has literally given me my life back. I
am now seeing a light I couldn't see before. They treat you like an
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I'm almost the person I was before my life fell apart. I owe it all to
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I don't know what I would have done without Tracy
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Advisory took me as a client.
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