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Today’s 550 credit score could be tomorrow’s 780 credit report.
When I look at a credit report, I wonder if I am struggling to qualify borrowers who were once very credit score, Most once had six figure incomes with credit reports above 700. These factors put these borrowers in the A paper categories.
Take Robert, a real estate investor who has borrowed millions of dollars over the years. With a credit score near 800 and a solid record for paying his bills on time, lenders lined up for borrowers like Robert. I was personally associated with him for more than ten years.
What happened? Like many others, Robert was a victim of the Economic Times. No, he didn’t overspend and when he called me last week, I knew he never took equity out of his properties. Robert was conservative. They kept their rents under market in order to keep tenants around longer.
He negotiated hard with me for long-term fixed rates on his mortgage and when he was faced with an ARM, which was fairly common for commercial properties, he fretted days before committing.
What do you do when your largest tenant files for bankruptcy?
What do you do when they can’t pay but continue to occupy buildings for months as courts sift through paperwork? Imagine the feeling that will go deep in your stomach… that’s what happened to Robert.
Without the income, he kept paying off his properties until his savings ran low. With the promise of a solution just around the corner, he finally tapped his credit limit. Credit cards with higher interest rates but also with larger limits. Eventually, Robert needed $25,000 a month to pay the mortgage.
When he came into my office, I noticed that he had lost weight. The kids were still in college, they told me, but they had to take out loans to make ends meet. His wife went back to work and they moved from a custom home on the hill to a tract home in town.
He was still playing golf and smiled easily when he talked about his sleepless nights and I could almost see a tear forming when he talked about the kids.
“I should have stopped paying before I tapped my savings, but I felt I had to pay.” They said.
Robert, like many of us, wanted to do the right thing. And it meant paying regardless of personal misfortune. Robert tried to work off his other debts as well, but he was creating an avalanche of debt by trying to do the right thing.
Finally, he could not bear the financial onslaught any longer and after accepting it, he let go of his assets. One by one, he lost them as tenants threw in the towel along with their keys. Some major companies, which I will not name, laid off one family.
I like Robert – always have and to me, he is still the same man I met ten years ago. He is honest and a good father. Although we don’t travel in the same circle, I think he would be an excellent friend. I know his wife loves him and it made me think about people and their credit reports and the debts they have accumulated.
Do people like Robert pay their bills just for the sake of credit score or because of some deep-seated respect? So then, how much is a credit score really worth? Why didn’t he stop paying earlier? Perhaps he could have saved himself a lot of misery.
I always deal with people who base their entire identity on their credit score. People with high incomes tell me they are respectable. that they pay on time and have little debt. Others, with low scores tell me their story and in addition to the circumstances they face, I believe either can be considered respectable. A lender may be tempted to lend to someone with a higher credit score, but I would lend money to Robert, regardless of his score.
If you have lost everything, like Robert, remember what you have and try not to put too much emphasis on your credit score because it qualifies you as a person. Sure, you can clear credit. You can work to raise your credit score, but try to remember that no number defines you.
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