Financial Peace University – Week 5

As you all know, I’m going through Financial Peace University (FPU) with my BF (Mr. Hive). If you’re new to the story you can read about the Preview Night, Week 1, Week 2Week 3, and Week 4 by clicking those lovely links. =)

Week 5 of FPU is about credit.

The majority of this lesson is about how to deal with debt collectors and debt collection agencies. I’ve (thankfully) never had to deal with collection agencies. While I have paid bills late in the past (or not paid bills) when I get to the point where the people I owe threaten to send the account to collections I always pay it. That is enough threat for me.

Mr. Hive  has also never had any accounts sent to collection, so for us while the information was interesting, it wasn’t that practical.

The one major point that Dave brought up was about how our credit score isn’t a measure of our financial success, it is really a measure of our success at being in debt.

And when you think about the things that go into our credit score this makes sense: the amount of debt load, the type of debt load, do we pay our debts on time, do we keep our debt for long periods of time, do we have an appropriate amount of inquires on our credit and then issued debt because of it.

Dave mentioned how he has no credit score because he hasn’t used credit for over 7 years. So based on how our society works (as he puts it) he couldn’t rent an apartment in a complex – but because he’s a multimillionaire he could BUY the entire complex. Does anyone else seem a little disturbed by this?

And when you think about it – the way credit scores are calculated isn’t right. There is no basis for how much money you have, your net worth, how much you make, any gifts that you receive – it is purely based on your ability to take and maintain DEBT.

Now, part of me wants to believe that I’d be able to go the rest of my life without using credit. It is easy to imagine for things like cars or other smaller-big ticket items. And while I’ve theoretically figured out how to pay for a house in 15 years in cash, it is hard to imagine living that lifestyle for the next 15-20 years. I really want a home to live in and love. So that means that I still need to keep an eye on my credit and on my credit score.

Thus, as Dave points out, it is VERY important that you check your credit report on at least a yearly basis. There are three major credit bureaus: Equifax, TransUnion, Experian. The website AnnualCreditReport.com is the ONLY free website sponsored by all 3 of the credit bureaus that will give you your credit report for free. Anyone else who says they can give you your report is telling you lies and trying to sell you something. Cover your ears and point your browser to AnnualCreditReport.com. You can get your credit report every year from each of these bureaus through that website. Awesome things to keep in mind: You can get one free one per year from EACH agency. So if you space it right you could check your credit report every 4 months! The inner PF nerd is going nuts about the idea of this.

Another thing to keep in mind: This is your credit REPORT, not your credit SCORE. The reason to check this is to look for errors.

Depending on the website I read or the study done, it appears that between 70-78% of credit report contain errors on them. Usually these are small errors like misspellings and the like. But sometimes they are grievous errors like showing you missed a payment when you didn’t or showing an account is open when you closed it. Apparently around 20-25% of errors on a credit report can result in denial of credit.

One fun thing I learned about fixing your credit report – if you find an error you need to report this to the credit bureau by mail (certified with return receipt). The credit bureau has 30 days to research the error and correct it or they HAVE to remove the item in question from your credit report! That’s right, if they don’t fix the error or prove the error correct, the entire item has to be removed from the credit report.

Thoughts on FPU Week 5: This week was a little light on information that really seemed to apply to me since I don’t have collectors calling me. But it was good from the stand point of knowing what they can and cannot legally do and also knowing how I can help people in these situations.

One thing that I found terrible was how some people will use their children’s credit (social security  number, etc) to get credit when they’ve ruined their own. I found this completely despicable. How could someone do that to their child? It is so important, especially if you’re young, to check your credit report and have EVERYTHING removed from it that happened when you were a minor as it is illegal for it to be there. One of the girls in our FPU class had that happen to her by her parents and she didn’t find out until she went to buy a house. According to Mr. Hive he knows for a fact that his sister did this with her daughter. I find this heartbreaking and absolutely terrible. But apparently 80% of identity fraud is done by people that you know – family or friends.

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7 Responses to Financial Peace University – Week 5

  1. I found this one quite interesting. And yes I think if you have the money to buy the place why can’t you rent a space inside it and why do you instantly have bad credit/no credit because you don’t use a credit card. It’s like everything we do is to make a credit company or bank fat off of us.

  2. psychsarah says:

    The last paragraph of your post is so disturbing! I can’t believe that people would do that to their kids.

    It is fascinating that Dave Ramsey has no credit score. Makes sense, but curious nonetheless. I guess if you have that much money, you can work around things like car rentals, airplane tickets and hotel bookings.

    • SS4BC says:

      It is disturbing. I can’t imagine the level of desperation someone must be in to take their children’s information and use/ruin their credit before they’re even old enough to legal HAVE credit. I also can’t believe it would happen, but there in a room of 12 people we had TWO that had experiences that proved it happens. So apparently this is not uncommon in the least.

      Dave uses his debit card for things like rentals, airplane tickets and hotel bookings. So I’m not sure that his credit report is an issue at that point. Only once has my debit card not worked for a booking, and that was for an airplane ticket on a German airline. Everywhere else my debit card with Visa logo hasn’t been an issue at all.

  3. It truly astounds me that people would put their children in debt! As a soon-to-be mom, the idea of doing that to my daughter goes against everything that I want for her – my role is to set her up to be in the best position to succeed in our society and that means teaching her about debt and how to be financially savvy . . . I guess some people are just really desperate (not that that excuses it by any means) – I just can’t fathom it! Crazy!

  4. 2blu2btru says:

    Ramsey’s views on credit are…interesting. I’m just saying, if I was going to lend you my car, I would want to know your driving record, what happened when other people chose to lend you their cars, etc. Anyone who is allowing you to acquire something before you finish paying for it should know whether or not you are faithful to paying things off. As someone who’s credit has been afflicted by my debt to income ratio, who has been turned down for things, and who has dealt with creditors (over a bill that I shouldn’t have been charged for in the first place because I was a minor–it wasn’t my parents’ doing, though), I have a reason to find fault with the system, but I don’t. It’s good business practice to check out references, and if the business deals in money or goods to be paid for later, your financial reference have to be checked. What I need to establish is “Can you pay me?” and “Will you pay me?” This is only a piece of the puzzle. They look at what job you have and your income as well (all part of your Beacon score, which I found out about when trying to get a car). I don’t like the whole credit is bad thing. People who abuse credit are bad, if someone/something has to be bad. I got an apartment approved when I couldn’t get approval for a car loan, so I know it’s not true that they would turn away Dave Ramsey for an apartment. That’s a scare tactic. If you make at least 3 times the rent, at least here, and can pass a background check, as long as you don’t have bad credit history, you can get an apartment. You may have to have a higher deposit, but you can get one, and having one builds your credit, too.

    I guess the Dave Ramsey way seems a little one sided to me. Good review, though.

    • SS4BC says:

      I do agree that Dave’s stance is very rigid in regards to debt and credit. Obviously he wants someone to have NONE.

      What I really got from this wasn’t that I should avoid debt/credit, but that I should A) make sure that my report is accurate and that B) I shouldn’t TAKE ON debt just to keep a “good score”. Right now I have an above average score and it will be like that for a while.

      The whole reason that I got in to credit card debt was because I wanted to make sure that I had “good credit”. $16,000 in debt later I have “good credit” but I also have A LOT of debt. I’m not sure it was worth it. Let me correct that, I’m SURE it was NOT worth it.

  5. Pingback: Financial Peace University – Week 6 « Small Steps for Big Change

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