Q: My wife and I had a bankruptcy discharged about 18 months ago. We’d gotten in over our heads with credit cards and couldn’t keep up the payments or take care of things around the house. Afterwards, a friend told us we needed to rebuild our credit score with a low-limit credit card. Since then we’ve missed a few payments, and owe about $400. Should I try to settle for a lower amount?
A:OK, let’s re-hash what you just said. You went into debt, and couldn’t pay your bills. Then you filed bankruptcy. After suffering through that and being discharged, you went right back into debt and messed up again.
What’s wrong with this picture?
Stop taking advice from this “friend,” who hasn’t got a clue when it comes to money. A high credit score is an “I love debt” score. It isn’t an indication that you have money and manage it wisely. It’s an indication you have a lot of debt.
Borrowing has not been a blessing in your life. It pushed you into bankruptcy, and now it’s gotten you into trouble again. It’s time to stop!
I realize $400 seems like a lot of money right now, but it’s not the end of the world. Get on a written, monthly budget, and give every dollar you make a name on paper before the month begins. You’ll have to pay some Stupid Tax, but you can take care of this in no time if you stop eating out for a while and have a monster, blow-out garage sale this weekend. Close the account, cut that card into tiny, little pieces, and never go back into debt again.
You are living proof that if you keep doing what you’ve been doing, you’ll keep getting what you’ve been getting. The solution? Change – beginning now!
Q:Will it improve my credit score, and help my ability to buy home later, if I pay my rent 30 days early for the next two or three years?
A:No. Your landlord probably isn’t going to report early payments to the credit bureaus. Just make sure you pay it on time. It is smart to pay a few days early, though – maybe seven to 10 days ahead of time, but for a different reason. That way if something goes wrong at the bank, you’ve still got time to fix the problem. Chances are your credit score won’t be impacted by your rental payments unless you’re late, and especially if you have several late payments. That could sure become a black mark against you later.
I’m not a big fan of the FICO score, because it doesn’t measure things like assets, income or net worth. It’s really just an indicator of your interaction with debt. This is one of the reasons why it’s really dumb for companies to base lending decisions solely on a FICO score. Fortunately, you can still find lenders that provide mortgage loans based on manual underwriting procedures, but they’re getting harder to find.
For more financial advice, plus special offers to readers, visit www.davesays.org.
NEMS Daily Journal