Helping a friend with credit

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Helping a friend with credit

Postby js2012 » Thu Jul 25, 2013 5:59 am

I apologize in advance for this long post.

A friend and I were having coffee yesterday and the subject of credit came up because she mentioned that she didn't have a credit card (she said that the bill pay for her bank, for example, actually writes out paper checks and mails them out after I told her how I pay for my credit cards online). This led to a general discussion on credit and how important having good credit is. I know that there are some people who could care less about their credit score and buy everything in cash, but this is where my friend's situation gets very scary.

My friend's background: She never finished college. A little over a year ago, she quit her job (making some decent money there, I might add) and decided she wanted to go back to school. She has basically lived off of school loans and unemployment for about a year. She is the sole name on a four bedroom apartment lease and she rents out three of the rooms to youngsters looking for cheap accommodation, which is how she is able to live in NYC with pretty much very little income. She maxes out the student loans because she wants to have a little cushion in the future in case the rent goes up or there is some sort of emergency. So, for that extra money, she puts it into a savings account and it's waiting there in case she needs it.

The good news is that she is open to getting help from me about fixing her credit, the bad news is I'm not an expert so I need a little help to make sure that my plan sounds feasible.

I suggested that she sign up at creditkarma.com to get a feel for what her credit score is. She thinks it's going to be pretty bad because years ago she signed up for two credit cards (one being AmEx) and she racked up $140 and then never paid it. I don't' remember what she said about the other credit card, but the good news is it's not a lot of credit card debt, but it hasn't been paid in years. The only other debt that she has (that she's aware of at least) is some medical debt and the student loans.

When I told her about creditkarma, she informed me that years ago, her brother offered to cosign on a credit card if she would get her credit score. She went to a website and somehow, inadvertently signed up for some monthly debit from her checking account to monitor her credit. She doesn't even know the name of the company to cancel. I'm going to suggest that we google what's on her checking account statement to find the company and then we can cancel that service. I know some people like to monitor their credit, but she's obviously not using the service so it seems silly to continue paying for it. Her brother also never cosigned any cards with her so that never materialized.

This is where the conversation turned to credit scores. She's afraid that her score will be very low (I am worried for her, too) and we talked about how getting an apartment would probably result in a credit check and she might not be able to get an apartment if she has terrible credit. She informed me that when she moved to NYC, she had to pay almost a whole year of rent in advance because of this fact (and of course, her financial situation now would not give her that option). In addition, she's worried that her low credit score will automatically disqualify her from a government job after she graduates. I didn't think that was true, but she did. I would love to hear from Bogleheads as to whether this is true or not. In addition, she has a mental illness and also feels as though she would be disqualified from getting a job because of this. Again, I'm not sure about this.

On to the last part. Please help me with a plan of action for her.
I suggested that we do the following:

1. sign up for creditkarma for her to get an idea of what is on her credit report so she can try and address the American Express debt and any other negative reports. To be honest, I'm not sure if she's gong to be willing to pay it. Knowing her, she won't want to get into a payment plan for the medical debt if it's high because she's really protective of the money she has sitting in the saving account because that's all she has. If the debts are still there after all this time, paying them off would remove it from her credit report, right?

2. cancel what ever service she is getting billed for every month by googling the name and finding out the company and then contacting them to cancel.

3. This is where I need help. I think she should get a low balance credit card, but I'm afraid of her applying and then getting denied. What are some ways to begin building good credit but that won't result in her getting a denial? The good news, is she has a summer paid internship so technically she has income but in the fall won't. I think that this will help her get a card and she wouldn't be lying when she said she had a job. (She mentioned that a friend told her to lie about having income in order to get a card, which I think is a bad idea but I'm not sure how to handle the internship if she may or may not have it in the fall).

4. Any other advice as to how to help my friend is greatly appreciated. She's a bit difficult to help because she is oblivious to many things like her school loans. In that I mean she is only taking 3 classes (9 credits) a semester and taking the summers off. As someone in their late 30's, I personally would be taking as many classes as possible to finish in less time (she is also still taking a lot of intro and core type classes right now), but, alas, I digress. Not to mention that she told me that she was denied financial aid for the fall for some $20,000 "income" on her tax report that she doesn't know what it is. The financial aid office told her she needs to bring in some statement from the IRS but she hasn't started working on that yet. I think this might be from the unemployment but she said it's not. She just doesn't seem to be as concerned as I would if I was in school and told I wasn't qualified for school loans and I didn't have good credit and very little income. I think I would have had my first heart attack at that point.

5. I dropped the word "budget" on her numerous times (I use YNAB and love it) but she didn't seem to latch on to that idea.

Thanks for the help!
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Re: Helping a friend with credit

Postby winglessangel31 » Thu Jul 25, 2013 7:22 am

Based on everything you've written, I'd say she has a lot of other more pressing and urgent issues to worry about (her income and spending/budget patterns, for example) before considering building up her credit. Of course, if she starts early, it will definitely be better, because the improvement might be there just in time for her in the future after she gets the financial part of her life back in order.

My opinion:
1. Instead of CreditKarma as a first step, go to https://www.annualcreditreport.com and request her comprehensive credit report (probably from all 3 at the same time; at this point she has nothing to lose or gain by staggering the requests from the 3 bureaus---some people suggest staggering by four months so every four months you'll have one updated one). I won't pay for the score, because the important stuff is in the report, and the score is just a very crude summary that won't help you interpret the report (and if the score is low it will just be sad and unhelpful). This is where you make sure that everything on the report is actually true and also this is where you know exactly what negative marks you need to work on. If it does appear that some accounts have gone into collections, it is not guaranteed that paying the remaining balance in full will remove it from one's credit reports. In fact, is it not a given, and you often need to fight for it / ask for mercy. The default is that it stays on the report for 7 painful years. [if there is anything I'm unsure of, it is this]

2. I'd go through her bank if the information on the checking account's statement is not sufficient to know who is withdrawing the monthly fee for monitoring her credit. And before I cancel the monitoring service, save all the data it's supposed to tell her. She paid for it, anyway.

3. This is where http://www.CreditKarma.com, http://www.CreditSesame.com, http://www.Quizzle.com, and http://www.Credit.com will come in useful. The numerical estimate for a credit score is, in my opinion, only helpful when trying to gauge what kinds of credit options are available to someone. Chances are she will have bad credit, and chances are even a low-balance credit card is out of the picture. Update us with more information and maybe we'll be able to be more helpful. Her last resort will be to go for a secured credit card, which works like a prepaid debit card, except that---you have to make sure that the company does this---the credit card issuer also reports to the credit bureaus, so one can grow one's credit history in this manner. It doesn't look good, but it looks better than a bad credit history. Also, if you want her not to lie but play her cards right, she could (according to her own judgment) take her internship income, treat that as her annual income, and spread that across 12 months for her monthly income and report that. I'm not sure what kind of monthly income you'll be seeing, but the lowest balance I've ever gotten was $250 unsecured (before a pre-approved credit limit increase for paying my bills on time for X months) from CapitalOne; it was also my first ever credit card. According to my friend who works in the credit card division of CapOne, they seem to be the best at being forgiving and granting people with poor credit low-balance credit cards to begin their credit histories. I had no credit history at all (non-citizen) and they were my first in. In my opinion, your best secured option: http://www.capitalone.com/credit-cards/ ... astercard/ and your best unsecured option: http://www.capitalone.com/credit-cards/platinum/. There are annual fees for those, but my Platinum card was actually pre-approved with no annual fee ever, so if your friend starts being in CapOne's system through having the secured card, maybe they'll find her creditworthy to have the no annual fee version one day. My own story is that I applied twice and failed (I was young, foolish, and uninformed... and I definitely applied for CapOne cards beyond my reach not knowing what I should have done), but they kept my file alive in their system, I guess, and that's how one day a piece of good news came in the mail for me.

4, 5. Is she paying per credit taken? If not, that is much more worrisome. This is actually what I meant when I said she seems to have much more pressing and important matters to deal with before considering growing her credit history (well, unless it's really just so that she can rent a place to stay). I hope she appreciates you and your help. On a side note---even I have trouble listening to my own advice sometimes, but---you shouldn't work harder than she does for her credit history.

:sharebeer Here's to a true friend.
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Re: Helping a friend with credit

Postby js2012 » Thu Jul 25, 2013 7:36 am

Thank you so much for the help!

You're right she has more pressing issues to deal with, but she has her head in the sand so the speak and I found that for me, personally, once I took my head out of the sand years ago to get out of my $6000 line of credit debt, I was able to deal with it, however painful it was. So, knowing is the first part of the battle.

I also was thinking that the sooner she at least deals with her debt demons, the sooner she can work on improving her credit and hopefully will have something for when she graduates.

I will definitely make sure she saves whatever information she has before canceling that service and get her to freecreditscore.com. I have to admit, I haven't used them in awhile but I remember the site being pretty confusing to navigate because they seemed to want to keep signing you up for some monthly service. honestly I think that is what happened a few years ago to her so it should actually be easy to track down which of the three I suspect is charging her for tracking her credit.

Will make a to-do list today and try and get her to sit down with me to work on it. I'm so excited to help her because of my own anxiety when I had a line of credit years ago. Even though I was paying it off, I couldn't sleep at night knowing I had this debt that wasn't even a college loan, just a load of money I wasted away. I used my anxiety to deal with it and pay it off, but I'm afraid that in her life, just burying her head in the sand and pretending it's not there is the way to go. I'm trying not to get too excited, lest I get disappointed if she does it again.
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Re: Helping a friend with credit

Postby winglessangel31 » Thu Jul 25, 2013 7:48 am

js2012 wrote:I will definitely make sure she saves whatever information she has before canceling that service and get her to freecreditscore.com. I have to admit, I haven't used them in awhile but I remember the site being pretty confusing to navigate because they seemed to want to keep signing you up for some monthly service. honestly I think that is what happened a few years ago to her so it should actually be easy to track down which of the three I suspect is charging her for tracking her credit.

Hold on---about freecreditscore.com---that's not something I suggested, right? :P http://www.AnnualCreditReport.com is the site that the 3 bureaus are required by federal law to maintain.

http://www.freecreditscore.com/ wrote:freecreditscore.com, together with freecreditreport.com®, is part of a family of online consumer credit reporting sites belonging to ConsumerInfo.com, Inc. an Experian® company.

Both sites are not what you want.
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Re: Helping a friend with credit

Postby js2012 » Thu Jul 25, 2013 7:51 am

Oops, sorry, you're right. I don't know if I've used that site before. Do the companies try and up sell there to their products?
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Re: Helping a friend with credit

Postby YttriumNitrate » Thu Jul 25, 2013 7:53 am

js2012 wrote:A little over a year ago, she quit her job (making some decent money there, I might add) and decided she wanted to go back to school. She has basically lived off of school loans and unemployment for about a year.


Something's not right here. When you voluntarily leave a job you are usually not eligible for unemployment.

js2012 wrote: In addition, she's worried that her low credit score will automatically disqualify her from a government job after she graduates.


I believe this is true for some government jobs that require a security clearance.
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Re: Helping a friend with credit

Postby BL » Thu Jul 25, 2013 7:55 am

js2012 wrote:
I will definitely make sure she saves whatever information she has before canceling that service and get her to freecreditscore.com. I have to admit, I haven't used them in awhile but I remember the site being pretty confusing to navigate because they seemed to want to keep signing you up for some monthly service. honestly I think that is what happened a few years ago to her so it should actually be easy to track down which of the three I suspect is charging her for tracking her credit.


Whoa! That is not the mentioned place at all. He said[url]annualcreditreport.com[/url], not what you just wrote! The one you wrote is the advertized one that wants to get you hooked on future payments. Don't use that.

I see you already got corrected. They like for you to buy the score, but that should be easy enough to ignore. The annual credit report . com is the only official one.
Last edited by BL on Thu Jul 25, 2013 8:00 am, edited 1 time in total.
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Re: Helping a friend with credit

Postby winglessangel31 » Thu Jul 25, 2013 7:59 am

js2012 wrote:Oops, sorry, you're right. I don't know if I've used that site before. Do the companies try and up sell there to their products?

BL wrote:
js2012 wrote:
I will definitely make sure she saves whatever information she has before canceling that service and get her to freecreditscore.com. I have to admit, I haven't used them in awhile but I remember the site being pretty confusing to navigate because they seemed to want to keep signing you up for some monthly service. honestly I think that is what happened a few years ago to her so it should actually be easy to track down which of the three I suspect is charging her for tracking her credit.


Whoa! That is not the mentioned place at all. He said[url]annualcreditreport.com[/url], not what you just wrote! The one you wrote is the advertized one that wants to get you hooked on future payments. Don't use that.

BL answered your question. :)
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Re: Helping a friend with credit

Postby js2012 » Thu Jul 25, 2013 8:15 am

Yikes! I can't believe I got the website wrong. As you can tell, I don't check my report as often as I probably should. :oops:

Thanks for all of the help. I'll try and get her going if she's up for it!
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Re: Helping a friend with credit

Postby frugaltype » Thu Jul 25, 2013 8:21 am

I would get all three free credit reports. Yes, you have to dodge sales things on those sites. I have a relative with a similar name who lived at my address for awhile and is a financial disaster. Occasionally her bad debts show up on one credit report even though they are supposed to check Social Security numbers before making entries.
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Re: Helping a friend with credit

Postby Default User BR » Thu Jul 25, 2013 6:18 pm

Regarding the past debts, if it's been a while and they have been charged off, it's unlikely that paying them will improve the score. The damage has been done. Are the CC companies dunning her for the amounts?


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Re: Helping a friend with credit

Postby SpecialK22 » Thu Jul 25, 2013 7:28 pm

js2012 wrote:
She maxes out the student loans because she wants to have a little cushion in the future in case the rent goes up or there is some sort of emergency. So, for that extra money, she puts it into a savings account and it's waiting there in case she needs it.


Define "maxes out student loans?" How much debt is she actually taking on? It also seems counterproductive to borrow money at a high rate [student loans] and then put it in a lower yielding account [savings account]. Fairly hefty price to be paying for liquidity, but I suppose the case could be made for a small emergency fund if she has no other assets.

js2012 wrote:In addition, she's worried that her low credit score will automatically disqualify her from a government job after she graduates. I didn't think that was true, but she did. I would love to hear from Bogleheads as to whether this is true or not. In addition, she has a mental illness and also feels as though she would be disqualified from getting a job because of this. Again, I'm not sure about this.


These mostly depend on the job she would be looking at. My understanding is that the background/security checks do not care about the credit score, only the report. For example, two people have delinquent debt. They both have similar weak credit scores, but one has entered into a repayment plan with creditors and is faithfully keeping to that plan while the other has not made any efforts to repay debt. The person with the active repayment plan will be looked at in a more favorable light. In short, financial issues may be disqualifying but it is not "automatic."

Mental illness would be similar. It might lead to disqualification from a job, but that depends largely on both the job and the illness. The same could be said for physical ailments, although there does seem to be more stigma surrounding mental illnesses.
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Re: Helping a friend with credit

Postby IlliniDave » Fri Jul 26, 2013 8:07 am

js2012 wrote:I apologize in advance for this long post.

A friend and I were having coffee yesterday and the subject of credit came up because she mentioned that she didn't have a credit card (she said that the bill pay for her bank, for example, actually writes out paper checks and mails them out after I told her how I pay for my credit cards online). This led to a general discussion on credit and how important having good credit is. I know that there are some people who could care less about their credit score and buy everything in cash, but this is where my friend's situation gets very scary.

....



Credit can be like alcohol. Some people just cannot deal responsibly with it (even though they are often well-meaning individuals). I'd be concerned about trying to encourage her in any way about credit (including efforts to build up her credit score) because it's likely that down the road she'll wind up with similar issues, only with more zeros on the end. The last thing she needs is another way or excuse to borrow money.

I agree with the first responder in that the first thing she needs to do is get her day-to-day financial life in order. Forget about the credit score until that happens. It sounds like she'll need some way to increase her income (i.e., get a job) and she needs to begin the process of paying back what she's already borrowed and living within her means. Rather than selling her on the idea of a budget you can try selling her on the idea of a spending plan (same thing, just the former implies external restraint and the latter implies having control).

In truth, she's got to be more than "open" to help. She has to have a strong internal desire to change. From what you describe she doesn't seem have it yet. It's a noble gesture on your part to try to help, but the drive has to come from her.
Don't do something. Just stand there!
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Re: Helping a friend with credit

Postby js2012 » Fri Jul 26, 2013 8:35 am

Thank you everyone for the feedback. I agree, the drive does have to come from her. The fact that she hasn't dealt with any of these things before does point to her apathy and it doubtful if my assistance will really help. I think I'll offer to meet with her sometime next week and she if she picks me up on the offer.

Hopefully, she can get on track.
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Re: Helping a friend with credit

Postby donall » Fri Jul 26, 2013 10:38 am

The credit report is looked at by some employers, especially in higher level positions or if there are money responsibilities. You will know because you will have to sign a release form. As for security checks, I think the form one signs gives the company or agency a lot of power to investigate, depending on the security clearance level for the job. Investigation can involve researching and interviewing neighbors and relatives. i was interviewed for about an hour, had to show driver's license and passport, and considering the questions asked, I think my credit report was pulled when a close relative was seeking a high level of security clearance. It seemed that the questions were more to see if they matched what they already knew.
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Re: Helping a friend with credit

Postby engineer1969 » Fri Jul 26, 2013 1:22 pm

I'm not sure if this is relevant, but I recently helped my mother-in-law to get her financials in order. As part of this process we checked her credit score and I was surprised to see it was much higher than mine. She lives very modestly, pays subsidized rent and lives off a small pension and social security. She has a couple of store credit cards. The credit score computation has me stumped.
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Re: Helping a friend with credit

Postby mhalley » Sat Jul 27, 2013 5:59 am

So is the AMEX card that she defaulted on still active? The annualcreditreport.com should show that. To start establishing credit, there are 2 things that she could do. One, get a secured credit card with some of the money she has in the bank and charge a small amount each month and pay it in full every month. You could go to bankrate.com and look for best secured credit card 2. Go to the bank or credit union where she has the money and see if they will give her a personal load based on her having money in the bank. It might take a couple years for her credit to rebound depending on how bad her score is now.
Mike

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Re: Helping a friend with credit

Postby M_to_the_G » Sat Jul 27, 2013 6:46 am

It's great that your friend is interested in government service. I applaud her. Depending on the government job your friend is considering, they might indeed delve into her credit history. And not only her credit history. She should consider how she is presenting as a candidate for her dream job, whatever that might be, in all aspects of her life. Is she presenting as someone who is responsible and who faces her problems head on and skillfully? You describe her as someone who is "oblivious to many things" and who "has her head in the sand."

She needs a wake up call pronto, methinks.
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