Building Your Credit In America

Credit is the manner in which the public is made aware of how an individual/family pays their debt obligations. Sounds, simple on the surface. In fact, mortgages are made based on the history of how someone pays their credit obligations. There is a fallacy in this system, but unfortunately we all must live by it. As an example, lets say that someone owes $50,000 on a credit card. Now here is another family that owes $200 on a credit card. Common sense would say that if both accounts were late, than both accounts would have their credit scores reduced. That in itself is true. But let's look into the scenario.

· Doctor Jones has a credit card with a $50,000 dollar limit. He misses one payment and his credit score drops perhaps 80 points.


· Joe Johnson owes $200 on a secured credit card and he misses one payment of $10.00.

The reality is this. It does not make any difference as to how much you owe, but when you are late. A $200 credit card that is late has the same penalty as a $50,000 credit card that is late. Is that fair? Yes, it is. Each consumer has their own personal reasons for their credit limits BUT, the penalty for being late is the same regardless of HOW MUCH THE DEBT IS.

The problem with our system, and we cannot change it without a drastic adjustment in Congress is the mere fact that creditors utilize a combination of un-ethical and illegal practices to collect debt. Do not get me wrong. There are some collectors that adhere to the law. But, there are also many collection agencies that "skirt" the law. In 2005, the highest incidence of complaints to the Federal Trade Commission was the violation of creditors/collection agencies in collecting debt.

Understanding the system, your consumer rights, how to negotiate and addressing the morality of debt is a task to say the least.

The system does NOT work. PERIOD. We hear many advocates of the collection industry maintain that for every dollar collected that simply means less dollars that the general public has to pay to subsidize bad debt. That simply does not wash. When a company loses money, the loss of income should not be subsidized in any fashion.

Now, lets dwell on the usury rates of credit cards. It was during the Carter administration that a poor New York ethnic group was almost put out of business. Remember the old adage, "If you don't pay, you will get your knee-caps busted". Well, if you do not remember, the prime rate in the late seventies and early eighties went up over 20%. Yes, the feds had the prime rate higher than "local juice". Wow, what a disaster. Now here we are, many years later and the credit card companies are charging average Americans a whopping 24% rate of interest for the simple act of using money (credit) After all, the credit card companies do NOT put up any money. They simply guarantee.

I remember the old street rule of "72". It meant that IF you had $1,000 and you had it in the bank and the bank was paying a 4% interest on your savings account you were really secured. That was and is an absurdity. The rule of "72" says that if you divide "72" by 4% the answer is (18). That means it takes (18) years for your $1,000 to double. So, here we have credit card companies extracting 24% from average people. Now put the pencil to that. Divide 72 by 24 and the answer is (3). Yep, it only takes (3) years for the credit card companies to double their money, that , they never put up a dime in the first place. They collateralized the paper.

That, is one of the biggest reasons that average people end up with credit problems. Because, they simply cannot afford the interest. I can tell many horror stories about, families that received a credit card in the mail. BIG DEAL. The card said "you have a credit limit of $300 but in fine print they also said you have an activation fee of $97 plus an annual fee of $55 plus, plus, plus. These poor folks thinking that they had a new credit card with a $300 limit broke the speed limit to Wal-Mart. Guess what? On the very first purchase they exceeded the limit and they were charged a $29 over limit fee. But, when they got the first bill it said "pay only $10" This became the trip to disaster.

When they got their statement they were outraged.. They could not believe that they were over the limit when they only spent $150. So, begins the trip to disaster. The credit card company has them locked in. Not only are they over the limit but many, many dollars in penalties. I get sick, when I think of the system. Can we help these folks? Yes, by CREDIT EDUCATION.

By: Regis Sauger www.yurcredit.com