Brand New Identity Alert!
Most of us are in financial trouble. We spend more than we make and the mess got much worse over the last few years. The bank bailout and the subsequent credit market implosion have created a national crisis that affects everyone, even the banks. In the middle of this mess are people who were living under a rock and barely able to make ends meet.
One of the haircuts I went to last week had toaparOSE upon losing his job due to layoff. Immediately, I needed to come up with a quick solution. I knew how the credit markets functioned and I knew that the real estate market had crashed, just like everyone else. But, there still WOULD be no water, no electricity, and gas in my home if gas and electricity were shut off, just like all the other homes in my surrounding area were without electricity.
At this point, I had already memorized the old saying, “Don’t put all your eggs in one basket.” I went to the bank and asked for a Home Equity Line of Credit (HELOC). I knew the terms, and I also knew that this was what many banks were offering. But here’s the rub. I had never really learned how a bank determines creditworthiness, let alone know what was required of me to qualify and what it takes for an average score to be approved.
Like most people, I had always just known that if you can manage a small loan or line of credit but can’t pay off the entire balance specified, your credit will get worse. I knew that some companies in my area were closing accounts and bumping credit limits because they weren’t making enough money.
Now I don’t know for certain how the HelOC and quick credit repair concept was developed by these bankers and loan officers, but my educated guess is that it’s exactly what the executives are telling their customers. Particularly now during these economic times, bankers and loan officers know that more and more ordinary people aren’t going to be able to pay off their debts.
By setting up the HELOC, bankers can still profit on the interest rate they choose because all they have to do is sell me the money.
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But now they have a new way to profit from my HELOC. Most of us have heard that a bank canFinance a home, but in the case of the HELOC, bankers can also finance it based on the 2% margin they justify as ” prime.” In other words, prime is based on your credit score and if you have perfect or near perfect credit (read: a score of 740 or higher), then you’ll qualify for a HELOC with no restrictions or credit check.
But what if you don’t?
Well, the bankers are still going to find a HELOC, they still want to make money, thanks to the prime plus 2% swindler rate. So now the window is right to say, “How about paying me 2% more than the prime rate?” And if you’re paying Prime, you might think, “That’s fair, a little bit.”
So notice that these person are taking advantage of your ignorance, their understanding of the credit system works differently than yours does. And you’re going to pay them 2% more. But isn’t this exactly what you were doing when you pay your bills? Always paying a bit extra from the minimum and paying it off in full?
Now let me ask you… did this HELOC make any sense?