Some days
you’re the fireplug and some days you’re the dog. No big deal, right?
Given a level playing field, financial travesty happens to someone every day.
On some days, such as the day the stock market crashed in 1929, travesty
happened to more than one person, actually quite a few people on the same day.
That’s just the way it seems to work and we accept it as fate. But
that’s with everything else being equal.
I’m not talking now of the
galactically stupid who allow themselves time and again to be enticed by the
golden carrot or led into the fiscal abyss by their desire to get something for
nothing. Nor is it about those of the clan who are only exercising their
overactive greed glands.
In this instance, my disquiet
relates to well educated, cultured, mature people who arrive here as
immigrants. Since our financial system operates so differently from anywhere
else, they seek the advice of supposed knowledgeable friends. Now don’t
even think about saying ‘if they learned to speak English, etc.’
because often it’s not due to a language problem. Many people around the
globe learn to speak English before ever setting foot onto North American soil.
The real difference is that they
came from cash and carry countries and here we do business primarily on the
promise to pay, i.e. credit. They were taught to save and purchase only when
they could pay cash. We buy now, pay later and that confuses anyone not
familiar with the system.
Once they receive a social
security card and begin working the subject of credit invariably comes up in
conversation with well meaning, but ill-informed friends. Subjects such as how
much credit I need to have in order to buy a house, for instance. Now many are
told to get as much credit as they can so that they will look financially solid
for the person deciding whether to grant them a mortgage loan.
Well meaning as it is, this
ill-conceived advice if taken, will almost certainly create a financial
disaster for the newcomer. Solid and potentially over-burdened are not the same
thing and the advising friend often has no clue as to the difference. Now when
the new credit holder tries to buy a home the abundance of new credit suddenly
becomes an insurmountable obstacle that will cost them the time it takes to pay
off their purchases, or at the very least establish a twelve-month payment
history.
You see, good credit refers to
more than just the ability to obtain a credit card or a loan. Once you’ve
received your line of credit new lenders, particularly mortgage lenders look to
your payment history. You’ve got one, but it takes a while to establish
the other.
What also bothers me is that
some slick operators are inclined to take advantage of others. We’ve all
fallen prey at one time or another to those bastions of commerce who conduct
their trade in various shades of gray when it comes to either full disclosure
or simple honesty.
These same unsuspecting new
arrivals to our shores are marks for these rascals and are sold or leased
vehicles for example, by the gross. Since these firms or agencies never carry
their own paper, a bank usually holds the notes. Should the buyer not care for
the product sold to him, the leasing company for instance will take the vehicle
back. Of course, now that it is a used vehicle some of the value has
eroded.
The catch is that they will
lease the vehicle to someone else and now the original buyer is in the position
of having sub-leased their unwanted auto. The problem and what’s never
explained to them in people-talk is that should this new lessee not make the
payments, the bank will come after the original buyer who is still ultimately
liable for the purchase and the loan is still rated on his credit report as the
responsible party.
Here’s a better plan. If
you have a friend who asks you for advice, don’t give any. Send them to a
professional in the financial industry, what was right for you may not be best
for them. Don’t give advice on how others should go about building their
credit unless you can also explain the pitfalls, in detail. Don’t
encourage anyone to use more credit unless you also know how to keep their
ratios in line.
To those of you who are in the
process of trying to look financially solid, it’s good to remember that
credit is not a paycheck extension tool. Credit eats interest, and the more
interest it eats the less chance you’ll have to save money for a down
payment on what you really want, a bona fide slice of the American pie, to eat
in your own home.
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