Financial Peace University – Week 5
March 24, 2011 7 Comments
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 2, Week 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.