Ten credit mistakes
1. Overspending
2. Carrying a permanent balance
3. Making only minimum payments
4. Holding too many credit cards
5. Assuming low interest rates will stay the same
6. Paying higher interest than necessary
7. Paying extra for âincentiveâ cards
8. Not reading the disclosure statement
9. Paying off the wrong credit cards first
10. Ignoring extra fees or penalties.
Source: Center for Economic Education, Wright State University
Signs of credit trouble
- Charging credit accounts to the limit
- Use one card to pay for another
- Do not know your total debt
- Borrowing from friends or family to pay debt
- Using cash advances
Source: Center for Economic Education, Wright State University
Consumer literacy by the numbers
60 percent
of consumers donât have a budget
24 percent
are not paying bills on time
33 percent
of households carry credit card debt from month-to-month
52 percent
of consumers are not very confident or confident at all they are saving enough for retirement
Source: Harris Poll, 2015 Consumer Financial Literacy Survey
Free annual credit reports
The Fair Credit Reporting Act requires each of the nationwide credit reporting companies â Equifax, Experian, and TransUnion â to provide a free copy of your credit report once every 12 months.
To order the free reports, either go online to annualcreditreport.com, call 1-877-322-8228, or print and complete a request form found at http://www.consumer.ftc.gov/articles/pdf-0093-annual-report-request-form.pdf.
How do you rate?
Lenders use different credit-scoring models. Two common models are FICO and the newest version of VantageScore. Scores typically range from 301 to 850.
- Excellent Credit: 781-850
- Good Credit: 661-780
- Fair Credit: 601-660
- Poor Credit: 501-600
- Bad Credit: below 500
How a credit score is calculated
35 percent
Payment history
30 percent
Debt amounts owed
15 percent
Length of credit history
10 percent
Types of credit used
10 percent
New credit/inquiries
Sources: Credit.com, FICO.com
Reporter Jim Otte will be joined on WHIO Reports this morning by two experts featured in todayâs story, Wright State Universityâs D.R. Fannin and Jackie Cummings Koski, an award-winning financial literacy author.
⢠Radio: 6 a.m. on WZLR 99.3 FM; 6:30 a.m. on WHKO 99.1 FM; 8:30 a.m. on WHIO radio, News 95.7 FM and AM 1290.
⢠TV: 11:30 a.m. on WHIO-TV Channel 7.
Nearly a third of us have no savings. A fifth have some money socked away but it wouldnât stretch three months. About a quarter owe more on credit cards than they have in savings.
Eight in 10 have some personal debt.
Years after the official end of the Great Recession, Americans remain buried under a mountain of consumer debt that is shutting some people out of the modern economy and causing credit woes for others that could take years and even decades to overcome.
Borrowing allows Americans to purchase homes, college educations, Fords and furnishings. Having access to it helps us live our dreams. But decades of wage stagnation and a deep recession that spelled the demise of many middle-class jobs â along with some spendthrift ways â have pushed many Americans into an economic quicksand.
âIn our society you cannot live without a credit card or getting some type of credit,â said Jackie Cummings Koski of West Carrollton, who conducts personal money management workshops and authored a prize-winning book on financial literacy. âWhen you get a house, youâre going to need to get a loan. When you get a car, youâre probably going to need to get a loan. When you rent a car or get a hotel, youâre going to need a credit card.â
Getting those loans and credit cards got tougher after the housing crisis, as financial institutions tightened borrowing rules. The economy improved and so did the household debt numbers, down 6.5 percent from its late 2008 peak. But borrowing is inching up again as consumers take out more home equity, auto and student loans, and reach again for the plastic.
The result for some â a poor credit history â can have long-lasting consequences.
âCredit scores can influence job searches, renting houses or apartments; obviously getting loans â loans at low interest rates â is another impact of having large amounts of debt,â said Katie Bryan, a spokeswoman for America Saves.
The numbers are staggering: American households with debt owe an average of $15,863 on credit cards, $156,584 on mortgages, and $33,090 on student loans, according to a July NerdWallet analysis of government statistics. Home equity lines of credit, auto loans and others bring the total owed creditors to $11.85 trillion, according to the Federal Reserve Bank of New York.
Mortgages account for 69 percent of that household debt total.
One of the reasons so many Americans are saddled with bad debt is the recovery has come with a giant asterisk.
The country lost 8.7 million jobs during the fallout of the 2007-2009 Great Recession. Federal labor statistics show those jobs were recovered by May of 2014. But pay for the new jobs didnât measure up to the ones lost. According to the National Employment Law Project, 44 percent of newly created jobs are in low-wage sectors.
Overspending is another major debt factor, experts say.
âPeople tend to use plastic to subsidize their income,â said Tim Brandon, education and marketing coordinator at Graceworks Lutheran Services Consumer Credit Counseling Services in Dayton. âPeople who lose their jobs are convinced that another job is right around the corner. When you go back to another job, chances are you are back into a starter position. Youâre really not going to have the income and youâve already run up all this debt on a credit card to try to keep your lifestyle the same.
âYouâre in trouble.â
Due to lack of savings, about 40 percent of low and middle-income earners who carried credit card balances for more than three months used the cards for basic necessities like housing, food and utilities, according to a 2012 survey by Demos, a public policy organization.
Bad choices
Chris Roark of Middletown is like a lot of Americans: Choices made more than a decade ago continue to haunt.
Roark, now 36, said it began with a car loan co-signed by his father when he was 16. He paid off the loan after he turned 18 but couldnât resist the credit card offerings that began rolling in.
Soon, he lost his job as a waiter and got kicked out of his parentsâ house. He checked into the Middletown Fairfield Inn for an extended stay, using his credit cards as if they were cash.
âI could have used (credit) to be highly successful but it ended up having the opposite effect. It literally destroyed my credit before I had the chance,â said Roark, who racked up $12,000 on the cards in just 30 days.
âIâd like to say it was because I had to, but that would be a complete lie,â he said. âIt was because I had no concept of the value of money.â
Roark, a married father of five girls and a boy, now works as a restaurant cook and is studying business information technology at Cincinnati State.
Years removed from his spending spree, Roark says heâs never fully recovered financially.
âI thought I had the whole world figured out and then every year after I realized how wrong I was,â he said.
âWe generally overspendâ
About 60 percent of Americans in a 2014 Harris Poll gave themselves an âAâ or âBâ grade in their knowledge of personal finance.
One local expert says those grades are inflated.
Americans actually deserve a âCâ grade when it comes to financial literacy, said D.R. Fannin, director of the Center for Economic Education at Wright State Universityâs Raj Soin School of Business.
âWe generally overspend. Conspicuous consumption is the name of the game,â said Fannin, who also teaches economics to undergraduates.
Almost a quarter of Americans owe more on their credit cards than they have in savings, according to a Bankrate Financial Security Index survey taken earlier this year. Four in five have at least some consumer debt.
âCredit cards are not necessarily an evil thing if used correctly. In fact you can get some that earn rewards,â Fannin said. âThe problem is when you canât pay it off and youâve made charges to a credit card. Some of the interest rates can be exorbitant â up to 29 percent or more.â
âMind-bogglingâ debt
Jason Yu, 29, of Englewood knows well the pain of high interest rates compounded on high credit card balances. He did the math on one maxed-out card with a 29.99 percent rate to discover he was paying $300 each month in interest alone.
In 2011, Yu had six cards maxed out to the tune of a âmind-bogglingâ $34,000.
Like many young people, Yu was introduced to credit cards when he enrolled in college. He started at Wright State University but quit in 2005. He next found work as a low-wage security guard.
âSome guy making $8.50 (an hour) with that much access to credit is pretty dangerous,â said Yu. âAnd it turned out really dangerous to me.â
Yu became a billboard for bad decision-making.
âI was a bachelor going out six or seven days a week partying with my friends. It just added up so fast. All the bars in Englewood, they knew me,â he said. âAnd I was really generous when I was drunk. I was paying peopleâs tabs.â
He also made irrational purchases, including a top-of-the-line gun safe that he bought on credit.
âI didnât even own a gun,â he said.
He paid more than $4,000 for the gun safe and later sold it on eBay, taking a $2,000 loss not counting the interest accrued on his credit card.
After the creditors started calling, Yu let his voice mail box fill up so he didnât have to hear one more collector. Citibank threatened court action.
He sought help at Graceworksâ Consumer Credit Counseling office in Dayton. The non-profit also has an office in Springfield and will accept clients from other area counties.
Fortunately for Yu, who is now a production associate in a tool-and-die coating shop, he avoided serious legal consequences. He is paying dearly for his mistakes, though, as he must remit more than $650 a month to the service that consolidated his debt and negotiated some of his interest rates down to pay off creditors.
More than a third of residents in the Dayton metropolitan statistical area had some non-mortgage debt in the collections process during 2013, according to TransUnion, a credit reporting agency. The average amount owed per account: $3,872.
A civil judgment like the one Yu was threatened with can blemish a credit score for at least seven years, Fannin said.
âIf youâve been involved with a lawsuit, you lost, and you didnât make good on it and pay, that will hit your credit report,â Fannin said. âIt could drop it as much as 100 points. So not a good thing.â
No magic wand
Financial advisers say there are only two ways out of personal debt and one â increasing income â isnât an option for most debtors.
âThere is no magic wand. You either have to increase your income or you have to decrease your expenses. Itâs that simple,â said Graceworksâ Brandon, who has also worked for a credit union and a major credit card company.
The pressure of being in financial arrears can cause problems at home and work, said Bryan of America Saves, a campaign by the Consumer Federation of America to work with people to get out of debt and avoid turning to predatory payday lenders in a crisis.
âThose who are in debt are constantly worrying about their money,â she said. âTheyâre worse employees. Theyâre usually worse family members because they are always fretting and always worried about these debts they have. I think it has more of an effect on the psyche than people imagine.â
Caroline and Zac Peck of Springfield know the emotional toll firsthand.
Sometimes they would argue for no apparent reason.
âWe wouldnât really talk and then three weeks later we would get into this huge fight about nothing,â Caroline said.
Added Zac: âIt would be a fight over bread. Really nothing. Absolutely nothing,â
The Pecks â Caroline, 34, and Zac, 27 â laugh about the stress-induced bickering now, but many of their bills are still unpaid, including the one for Zacâs October trip to the emergency room at Springfield Regional Medical Center after he fell ill at work.
A months-long lapse of Zacâs employment while he had surgery and recovered from an aortic aneurysm put the family in a financial free fall. Disability payments never materialized and the blended family with three children put plans on hold to buy a house while they focused instead on keeping the utilities to their rental house from being shut off.
The two married in May 2014 in a low-key ceremony five months before Zac was diagnosed.
âWe were in a good place and headed towards the dream most people have. And we worked hard for it. We were paying off bills and doing things to up our credit,â Zac said. âWe had a game plan. Then the bottom fell out.â
Caroline continued to work as a medical lab technician in Columbus and Zac returned to his welding job in February at the same pay. Their combined income â when working â is comfortably above the 2014 U.S. median household income of $51,939, yet their financial outlook is hardly comfortable.
Theyâre constantly shuffling payments and putting off creditors.
âItâs essentially robbing Peter to pay Paul and still being broke at the end of it,â Zac said.
The Pecks estimate they owe $8,000 to $10,000 in out-of-pocket medical expenses and another $7,500 on a couple of maxed-out credit cards and a loan. Theyâre trying to regain their footing by paying off what they can and purchasing only necessities â in cash.
The greatest frustration is working with utility companies, Caroline said. Late fees alone added hundreds to what they already owed.
âRight now the rough plan is getting the utilities down to where theyâre supposed to be,â Caroline said. âSo instead of paying $600 a month for utilities weâre paying $200 a month like we used to.â
The two never considered bankruptcy. Medical bills, even for those with insurance, were the cause of 60 percent of personal bankruptcies in 2013, according to NerdWallet Health.
The Pecks canât fathom when theyâll climb out of the hole, but theyâre slowly plotting a future. Both are in school part time at Clark State Community College hoping to broaden employment opportunities. Caroline, who already holds an associateâs degree, is studying medical office administration. Zac is embarking on a degree in mechanical engineering.
Theyâve taken out student loans for their educations â another monumental chunk of Americansâ debt, totaling $1.19 trillion as of June 30. The average 2015 college graduate with student loan debt will owe more than $35,000 according to Edvisors.
Zac doesnât have to look far to find others like him.
âThereâs 50 people on the shop floor and maybe one person isnât in debt,â he said of his workplace. âEverybody else is paycheck to paycheck.â
Conquering debt
Debt problems and bad credit can be conquered, as Leah Staggs has proven. She emerged from debt scarred but is now in the best financial shape of her life.
After two marriages ended, Staggs was a single mother providing for three daughters â and saddled with $10,000 in credit card bills she couldnât pay.
âThrough my 20s it just seemed like I let it hang over my head,â said Staggs, now 38.
At times she felt harassed by debt collectors. âWhen they are calling every day it can be really depressing. You want to pay them, but you donât have anything left over,â she said. âYouâve got three kids at home and your water comes first and your electric comes first and food on the table.â
She wanted to buy a house â an impossibility with her credit score â so she sought help at Community Action Partnership and enrolled in a program that teaches financial literacy, helps repair credit, and walks a person through the home purchase process.
Her success would hinge on the ability to find and maintain a good-paying full-time job, which sheâs had as a legal assistant, now with the same Miamisburg firm for four years.
It might be counter intuitive, but once a person gets their bills paid they need to acquire some debt to increase their credit score, Staggs said.
âThatâs not what I wanted to do after getting it all cleared off. I didnât want any more credit cards,â she said. âBut then you have to have good credit on there too to be able to get home loans, car loans.â
It took her more than seven years, but Staggs finished the program, repaired her credit and is the proud owner of a home in Farmersville.
âWhen I got the key to my house I was so thrilled,â she said. âIt was a long, hard haul to get there.â
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