Riverside Realtor Blog - Alma Dizon

Alma shares her experiences and observations as a Realtor in Riverside California.

Sunday, April 30, 2006

Credit Rule #1: They Won’t Bend the Rules

At some point in an intelligent young person’s life, he or she discovers that there are ways of getting around the rules. Some individuals learn to negotiate at a very early age and hone their powers of persuasion. However, they run the risk of running into trouble with their credit scores if they fail to understand that creditors won’t be manipulated.

Recently, a friend of mine bemoaned his daughter’s situation to me. (Please note that names and details have been changed to maintain their privacy.) Aaron and Mona had helped Belinda buy her first condo when the young woman got her first real job. The couple took money out of their savings toward retirement for the down and borrowed the rest. Later, after escrow closed, they put Belinda on title, too, thinking that this would help establish her as a home owner. This was a couple of years ago, so prices were still reasonable for cosmetic fixers. They got a good interest rate, and the payments were manageable—or rather, they should have been.

Belinda went into sales, and some months were better than others. She got a roommate, and that helped, but Aaron found himself supplementing her mortgage payments more often than he would have liked to. A year later, Belinda was doing well, and she promised her parents that she would take over the payments completely.

Within five months, Aaron and Mona got a notice that the condo was in foreclosure, and that they were going to lose it. Aaron immediately called Belinda, who burst into tears. Apparently, she was late on several payments, and then she had gone in to talk to someone at the lender’s office who had assured her that she could take another week to get the money together.

Unfortunately, Belinda hadn’t understood that a low-level person wasn’t going to able to bend the rules for her. And certainly no one in a management position was going to do it either.

Luckily for Belinda, her roommate had a friend in college whose parents wanted to buy him a condo near the university. Aaron and Mona were able to arrange the sale themselves and sold the unit cheap but quickly. There was a prepayment penalty that ate up the profit they would have made, but at least they were in the clear as far as the condo was concerned.

Belinda has moved back in with her parents, who are now looking into refinancing their home to pay off other debts that they accumulated along the way, fixing up and furnishing the condo. Due to the foreclosure, they’re looking at a 3/1 ARM starting at 9%, and their monthly payments on the house that they’ve lived in since Belinda was a toddler will double.

So even if you think your kids understand, please tell them rule #1: the rules of credit won’t be bent. Pay your utilities, rent, mortgage, credit cards, and other bills on time. One late payment on one bill can affect your interest rates for other accounts. And if you can’t afford all those payments, don’t buy on credit. In fact, don’t buy anything at all.

An article that explains how one late payment will affect everything else:
http://moneycentral.msn.com/content/Banking/Yourcreditrating/P56621.asp

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