Consumer Credit Primer - Get The Facts On Credit Repair And Credit Problems

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A Little Story About The History Of Credit In The US

There are two sides of the credit story - one from the consumer's point of view and the other from the lender's point of view. We often hear the story from the consumer's point of view which is often told by those who have been victimized by the system. It is the more accepted version in society that there are greedy multi-national corporations out after the little guy. They seldom see the bigger picture. This is my attempt at telling both sides of the story.

No doubt credit is a useful financial tool. We used to have a "cash and carry" type of attitude about 100 years ago which made things more simple - if you did not have the cash, you did without and learned to live with less.

No doubt, the concept of buying things on credit is not a new idea. There have been mentions in historic writing which explained how people wound up in debt and ending up in a debtor's prison which was one of the most horrid places to be. Even the classic author Charles Dickens' family had to suffer the curse of debtor's prison which inspired a lot of his work. The Bible itself had guidelines in the Old Testament which covered borrowing money.

In the idealistic times as the US was pulling out of World War I, and with the help of the newly formed Federal Reserve during the roaring 20s, credit was about to really gain its love-hate status in our country. Times were hard for everyone before the war. Many in the US were indulging the fantasies of all the things that could be bought in those new catalogs from Sears and Montgomery Ward, but most people could only dream of having such things or save up for them.

Financially, things were looking up in the United States right after the war. Everyone was taught from an early age that anyone with a little ambition and hard work could be the next Carnegie, Ford, or Rockefeller. Store credit was starting to become more common in order to stimulate the economy after the war. After all, we wanted to forget about the nasty war and live in a prosperous, isolationist country - what better way to do it than to have THINGS decorate your home and life? Even if you could not afford it yet, you had every intention of paying it off over time.

Things were rosy - then came the Great Depression. The stock market crashed. Wealthy people went broke. Banks had dry runs and called in all loans. People lost their jobs and homes. No one could afford to buy anything and there was a lot of debt that could not be paid.

If you are lucky enough, talk to someone old enough to remember those times. It was not pleasant in the US during that time, but it was the same in Europe, Asia, Africa and South America. Times were hard and there was nowhere you could go to escape it. Credit was no longer an option in most cases. People no longer trusted putting their money in the banks. The economy was stagnate.

Then there was a light at the end of the tunnel. Just as the US was about to feel hopeless, the economy started to pick up a little and then we were pulled into WWII by an offense so serious our troops had no other choice except to fight back with all our strength and forget about trying to keep ourselves isolated from the problems of other countries because they were now our problems. The US would be on the road to being a major force for the world to deal with. A secure world meant more stability in our own country and our way of life.

With so many men going overseas to help fight the war, this left a lot of women to take over where the men left off. Credit was starting to get favor back in the population where sometimes women had their husbands fighting for the country and could not support themselves without a little extra help, but even then it was in great limitations as most goods were in rations.

The victorious day came when the troops returned home. The world was supposed to be a better place. The "American Dream" was being born. Every G.I. that came home to a loving woman expected to break with the tradition of living in the home of a parent until they could afford their own homes. A new concept of a life in the suburbs where brand new tract homes were developed for men who wanted to have their reward - a nice house, family, secure job, and a great retirement provided they were loyal and hardworking employees.

Well, that's what they believed at the time. Banks made it easier for people to not have to start married life in the home of a relative. Mortgage loans were growing in number. To boot, with people living in the suburbs they needed cars. No one had that type of money to buy either with cash up front, so credit was an expected part of life. At least for those big ticket items until couples could get established...

It wasn't so bad back then in the late 40s and throughout most of the 60s. People actually did live that American Dream and were able to keep out of the serious debt trap because they were still able to keep within their budgets. Even if the "little woman" wanted to go out and occasionally splurge at the department store on credit, this was not as a financially threatening thing as it is today. Many people were able to save money towards retirement, make wise investments, and even had retirement accounts secured through their employers.

Unfortunately, MOST Americans could never have this "American Dream". It was always in sight, but not attainable because of one's status in society. Members of minority groups, single women, poor men, poor families, new immigrant families were a large segment who could not reasonably attain the "American Dream."

Before you jump at me with the garbage that anyone with ambition can win in our society, just look at all the poor who were living in the Appalachian Mountains who were living in rusted shacks without indoor plumbing or electricity with barely enough food to eat on a daily basis and children who were severely malnourished and lacking in educational facilities while the parents had a lack of job opportunities. They never had a chance to play the credit game because they had no way to be properly educated nor had the ability to access the opportunity.

Don't forget about the minority population. Before the Civil Rights movement of the 60s, an African American had no chance to compete with the rest of society. While our society has come a long way from that time, you must never forget that those were times that unless you were a white male you were considered a sub-citizen. This included women, even white ones who needed a white man to set her place in society. It is not a pleasant fact to remember, but this was the case. Anyone who fell within this group was never realistically expected to ever have the "Dream". It was dangled in front of these groups as well as the extreme poor living in the hills.

They were not the only ones excluded from the "Dream". It was dangling over the sights of people who had no means to achieve a goal never meant for them. What happened next should be no surprise.

Equal rights for everyone - what a concept! I won't go into too much details about the importance of the freedom movements of this era, but it did weigh in heavy into the credit industry. For things to be truly equal, everyone should have access to the same fair chance with credit, banking, loans, and investment. The standard rules of qualifications were becoming more lax in order to accommodate the greater population because in theory, as presented to the population, if more people could enter the system of credit and pay their bills and work hard it would stimulate the economy enough and would make things better for everyone...It didn't quite work so well.

While most who were now allowed entry in the world of credit were hardworking and honest and had every intention of paying off debt, some were not. Yes, even under the old system there were dead beats, but it was a bit more controllable because the qualification standards for the loans were higher which left most people out of the ballpark. Then again, some of these "dead beats" refused to pay based on the deception of the loan itself. With more people playing the credit game, it just meant many more who would not respect the system.

Debtor's prison was no longer a threat. It was deemed inhumane and seemed it was best to let those who owed money out in the workforce in order to pay the debt and support their families. As long as the economy was secure and the cost of living was within most people's reach, surely there would be no further problems...right?

During the 70s, credit was starting to get more and more out of control. To make things worse, people were facing inflation, high unemployment and the cost of living starting to get out of reach. Credit became the way to buy everything because getting actual cash was becoming a hard task to accomplish. Everything bought on credit was now becoming a serious national liability.

Why not follow the example of our government which was being threatened by a growing National Debt which at that point seemed as if it could be paid within a generation? Our government was spending money it did not have and did not have the tax resources to pay it. The money they were spending was not based on anything of real value anyway. Our paper money really is worth nothing. Money once used to be backed by gold. Now it is based on nothing more than a promissory note to be paid at a later time.

Banks wanted to be assured a profit for the money they lent to those on credit - that was part of the agreement and their legal right according to how our system dictated the role of the bankers with the consumers. The bank's official position was they did not just hand out credit cards from the goodness of their hearts so people could simply buy things to make life better. It was purely an investment vehicle, a loan. The consumer signed an agreement to repay whatever they spent along with interest. The middlemen who gave out credit cards got paid a fee for handling these transactions to cover their expenses as well as make a profit. As far as these lending and credit companies were concerned, they did their part and expected to be paid. It is the secret behind the "loan" which will make you angry.

Most consumers did pay. However, even the most sincere of people would sometime encounter hard times and become unable to meet their end of the deal. Then there was the element who would do anything to get out of paying. It was the non-payers who posed the biggest threat to the credit industry.

Laws were put in place in order to try and be fair to the creditors who stood to lose a lot of money they invested, but at the same time they needed to protect the consumers who just might be innocent. It used to be assumed that the lenders were always right and could be as aggressive as possible, but this had been proven wrong. Sometimes even the creditors could make mistakes and would go after the wrong people in harsh ways. It was best to use an approach of caution and treat debtor's as innocent until proven guilty and allow them the dignity of any citizen.

As a result, regulations became tighter and rates to take out a loan or a credit card became higher to compensate for the mounting unpaid debt. Credit bureaus were legal gossip ports for the financial industry and most people had no clue about what was said about them behind their backs, until they were aware they had a right to know and dispute any incorrect information.

It has been a vicious cycle of creditor versus debtors. Credit is not the evil, but it has been abused without a doubt and turned into a bad thing for some people. Credit seemed to be shrouded into some mysterious, yet feared force. It has been represented by some as the source of all the downfall of our society, allowing people to indulge in unnecessary things trying to compete with others. It has made our society seem too lazy to go after working hard to earn things when we could easily get it on credit. Often, the things bought on credit were for "toys" that were not vital to life. When times got worse, people then used credit to pay for the basics that should be paid through their salary at work such as for groceries, utilities and rent.

Credit is not bad. It is an impersonal tool, but it may surprise you where the funds come from to supply you with this loan. Once you understand it and approach it with reason and logic, it can be your friend. Do you realize the consequences if credit were to disappear overnight?

If everyone in the country made a pact to suddenly cut off all ties with the credit lenders, there would be a financial black hole that could send the economy to times worse than the Great Depression. Credit used in positive ways allows people to buy homes, start businesses, and contribute to society at large.

If all credit were cut off and people had to save up for things, less people will start businesses and existing businesses would have to lay off people in large numbers who would have no other means of support. In turn, these unemployed people with no means for income could not afford to support the existing businesses which leads to further job loss and less security in the area. It could be a very vicious cycle.

The lenders really are not the bad guys. To them, this is merely a business transaction exploiting a legal loophole to make a profit. It was never meant to be a personal vendetta against anyone, nor was it ever intended to be charity to pay living expenses of everyone in the land. They are in business to make money and needed someone to do the dirty work of collecting money that was not being paid according to the signed agreements.

As the financial industries seemed to be losing the battle, it seemed only logical that collection agencies be given more authority to collect debts. In exchange for the service, they were given a percentage of the debt while the company collected most of what they were owed. Most of these agencies went by the book and did whatever they could within legal means to collect a debt including making calls, sending letters, and taking legal actions to seek a judgment or garnish wages. Then there were a few companies who would do anything and skirt the law to collect the money who were giving the collection companies a bad reputation.

Due to the highly questionable actions of a few agencies, consumers started demanding more protection against the harassment techniques. Even those who owed who would have otherwise made arrangements to pay were too afraid of dealing with these ruthless companies and some otherwise good people would hide their heads in the sands rather than deal with the debt. Rules were set in place that were heavy in favor of the consumers. This was an arena that could be a losing proposition to the lending industries, so they had to do something about debts that could not be collected in previous methods.

If traditional methods within legal means were exhausted and the debt could not be collected, these businesses had another option - debt purchasers, the bottom-feeders of all collection agencies. These companies are collection agencies, but they don't actually work for the company to whom the debt is owed. They contact the lending industries and give them a plan to ease the burden of debts that are hard to collect - they buy the original debt for pennies on the dollar and allow the company to write off the debt as a loss on their taxes. The original company no longer has anything to do with that debt.

What happens next is the company that bought the debt is legally owed the money you were supposed to pay the original company which may include interests and legal fees. They are often able to skirt the law better than traditional collection agencies and will do things that are slightly close to breaking the law in order to force you to pay the debt.

They can be very effective in getting money for legitimate debts. The money they collect will never go to the original lenders. They keep all the money you pay them. This is why you may get a letter from a debt collector who will offer to "settle" your debt for a lot less than the original amount.

As they bought the loan at 5-25% of its value depending on its age, they can mark it up to create a profit and you can still pay less than half of the price of the original debt.

If you owed $10,000 to Credit Cards Inc [CCI], Debt Buyers Inc [DBI] could buy the debt for only $1000. In turn, DBI now owns the rights to collect your $10,000 debt from CCI. They are in legal rights to collect the full amount as CCI sold it and wrote it off as a tax loss. CCI will no longer have anything to do with this case.

DBI will now contact you and represent themselves as collectors attempting to get you to pay your legitimate debt from CCI, but will seldom tell you CCI no longer owns the debt and any money you pay will never go to CCI, but only to DBI. It sort of makes a mockery of the debt system.

As it is in the best interest of DBI to turn this debt over for a quick profit, they will make you a good offer to settle your $10,000 debt for only $5000. You may be unaware of why they are making this generous offer instead of going after the full amount, but there is a good reason - if you will settle for half the amount which may be more manageable to collect within the statue of limitations laws, they can make a profit of $4000 on your debt of $10,000.

While they are within their legal rights to collect the full amount, chances are great the reason the original company could not collect the amount was you were not able to afford it and it was nearing the time when the law would state the debt could no longer be pursued in court.

If you legitimately owe a debt, this can be an ideal situation for you. The original company has been compensated through the taxpayers [uncool, but that's how the system works.] These debt buying businesses made shrewd investments that will mostly pay off in a quick time. And you can free yourself from a debt for a lot less than you thought. However, when you realize the source of the loan, none of this will seem fair at all.

This debt buying industry which bottom feeds from these debts think they are above the law. It never occurs to them that perhaps the debt they bought was in dispute. Often they buy disputed debts from other debt purchasing companies not knowing there were problems with the debt. What if you are targeted by these companies who call you and insist you pay a bill you do not owe?

Unless you know your rights as a consumer, these companies have been known to be bullies in order to get you agree to pay the debt - even when it has passed the legal statue of limitations on the debt. Once they get you on record to consider you just "might" owe the debt and agree to any payment arrangements, it opens up the way for them to legally extend this debt past the statue of limitations.

Legally, once they buy the debt, they could go after you for the next 100 years to get someone to state on record they owe the debt and open the case where it could be pursued in court, but until you state for the record you owe the debt and it is past the limitation time, they cannot take court action to force you to pay the debt. How do you know what to do when dealing with these companies?

There are all kinds of companies out there that claim they will help you with your credit problems. Some are good while others are scams. How do you know whom to trust? Do you even know what credit can do for you? Do you know what is on your credit report and is it really important?

And if the time is right and you really need the credit, what must you do to apply and get the best possible agreement? Suppose you were a past credit risk, but you want another chance, how do you start over without getting ripped off?

The following sections will deal in more specific arenas of credit:

• The Secrets Which Will Make You Angry
• Your Rights And Responsibilities As A Consumer
• Getting Your Credit Records
• Cleaning Up Your Credit
• Credit Report And Bill Disputes
• How To Deal With Collection Agencies When You Do Owe
• How To Deal With Collection Agencies When You Do Not Owe
• Applying For And Getting The Best Credit Terms
• Dealing With Banks
• Planning For Your Future
• Living Below Your Means
• Identity Theft And Credit Fraud