Credit/Debt Recovery

"Getting by" part 2

Another note about the Pew Survey I blogged about this weekend:

On the list titled "biggest problem facing you and your family," the responses included what you'd expect: Not enough money/bills, taxes, cost of living, unemployment, recession, fuel prices, health care costs, health problems, etc.

Thing is, they don't suggest debt as a separate issue for people. Obviously they aren't suggesting debt isn't a problem families are facing; I'm sure people's debts are rolled up in the "paying bills" category.

That's a problem.

Your debt payments are not like your utility and phone bills. When I help people with budgets, I never lump those things together. Most of what we think of as "bills" are a given. You're going to have electricity, gas, phone service, etc. But you don't need to have credit card debt. When you start thinking of credit card bills in the same way you think of your utility bills, you're in dangerous territory. Your goal should be to pay those debts off and be done with them. That's a very different outlook than you'd have with a perpetual expense like the electic and phone bills.

Ditto car payments-many people assume that they'll always have a car payment, so they go car shopping as soon as they pay off their auto loan. Don't be one of them. Once you've paid off your car, own it for a while, live without car payments being due every month. Give yourself a break from debt.

"Getting by"

I was going to blog about how this Pew survey has been interpreted (Most Americans Moderately Upbeat About Family Finances in 2007 is how they title it). As you can imagine, some people linking to the article focus on the 32% who respond that they are either barely getting by or don't have enough for the basics.

I think I'll focus on that 32% as well. I've worked with a lot of people in various stages of financial crisis. I feel for them (I'm acutely aware of what it's like to be broke), but I'm convinced that no matter what you do, there's going to be that 30% who feel they can't get by. I'm convinced I could give most of that 30% an extra $5,000 per year and they'd still be barely getting by.

I'm not trying to put anyone down or be insensitive. What I'm trying to say is that when it comes to credit & debt, how much money you make is not a significant factor. There are people who make very little money with perfect credit, and multi-millionaires with terrible credit.

I sometimes see open hostility from people who are completing their pre-discharge bankruptcy education. They feel that they simply don't have enough money to make ends meet, and they're insulted that they have to take the financial literacy course, as though being in bankruptcy means they're stupid. I know it feels like more money is the answer, but my experience teaches me otherwise. If you're financially literate and have good spending habits, it doesn't matter how much wealth you have.

A lot of people won't accept that; I've heard a lot of protestations to the contrary from people in financial crisis. I don't know how to change the mind of someone who is convinced that they can't get by on what they're earning. I know a lot of people are genuinely in poverty and truly don't have enough money to get by; I've been one of them for long stretches of my life. But they aren't 32% of the population. There are simply too many people who don't have any sense of perspective when it comes to personal finances.

What I'm saying is this: in a country where 94% of us own microwave ovens, I don't believe 32% of us can't make ends meet. But no matter how good things get, you can count on a third of us to claim we don't have enough.

My verdict on Vantage Scores

I've posted in lots of places about the credit bureaus' new Vantage scores (here, here, and here are just a few of the posts.) I finally obtained a copy of my Vantage Score, and my verdict is:

It sucks.

It's way off from my FICO scores, which I purchased at the same time, and which all seem pretty accurate to me. It's also lower, which doesn't make any sense, as the FICO score is based on the same data and seems to be right where it should be. Also , Vantage scores go up to 990, while FICO scores go to 850, so if a Vantage score is lower, it's WAY lower, right?

My fears about the Vantage Score system have been confirmed. I won't be doing business with any lender who uses them instead of FICO scores. Fortunately, I doubt there are very many of those at this point.

And no, I'm not just cheesed because the Vantage Score is lower (althought that's reason enough). It seems that an old inaccurate account that I've been fighting to remove for years, which only appears on my TransUnion report and not on Experian or Equifax, is affecting my Vantage Score. So just as I feared, a mistake on one of my credit reports is now damaging my entire score. Under the FICO model, that Transunion mistake wouldn't affect my other two reports, so I'd have the potential to have a better score. (As a matter of fact, my Experian score is 9 points higher than my Equifax score, which is 53 points higher than my Transunion score. That difference is far from insignificant. Naturally, I think the higher two scores are more accurate, but imagine all of them being drug down to the TransUnion score's level because of that error on the report. That's what seems to be happening with the Vantage Score.)

Piggybacking to good credit

Here's another AP story about the credit score improvement practice I blogged about last week.

With the attention this practice is getting, it's a safe bet that Fair Isaac and/or the gov't will put a stop to it soon. Probably for the best.