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Black Collegian Career Center
The Importance of Establishing and Maintaining a
Positive Credit Rating
by Professor Steven E. Campbell
Words cannot over emphasize the importance of maintaining a positive credit rating especially for college students or those
recently graduated. Many employers are reviewing your credit history as part of a pre-employment screening. For those seeking
employment in the securities business, it is important to note that credit investigations are required. Perhaps a privacy issue can be
argued, but in reality if a person does not honor his/her debts, questions shift to the applicant’s integrity and creditability.
For minority citizens it is even more important. Despite arguments to the contrary by banks and other lending institutions,
“redlining and zip code discrimination” still exists. “Redlining and zip code discrimination” is the practice whereby a person is
charged exorbitant interest rates or denied credit altogether based upon their address or ethnicity. For example, an African
American or Hispanic with an inner city address is presumed to live in a “bad” neighborhood, have a low income and is a high
school drop out.
Those factors along with institutional racism and stereotypes equal a “High Risk Applicant.” Sadly enough, recent statistics
indicate 47% of African Americans/minorities have negative credit ratings.
The statistics released in the fall of 2000 by the Association of Community Organizations for Reform Now (ACORN) reflect the
startling fact that not only are low to middle income minorities being discriminated against but also upper-income African
Americans and Latinos. Note the following:
- Upper-income African Americans were 2.63 times more likely to be refused residential mortgages than upper-income whites; and upper-income Latinos were twice as likely to be denied as upper-income whites.
- In 1999, African Americans made up an average of 15% of the population in the examined metropolitan areas, but received only 5% of the conventional mortgages. Latinos made up 10% of the population in the areas studied but received just 6% of the mortgages.
Source: Metro
During the mid 90s, Dr. Spencer Boyer, a professor at Howard University School of Law was denied a $50,000 equity loan,
despite having a net worth in excess of $1,000,000. Dr Boyer sued and was awarded $200,000.
ACORN reports of the 50 cities surveyed, the bottom three were:
- Philadelphia
- Milwaukee
- Chicago
Fannie Mae, the nation’s largest mortgage investor, has noted that 50% of the minorities placed with “sub-prime loans” could have
qualified for a cheaper more affordable rate.
What is a credit rating? According to businessman Greg Wynn, owner of Flexible Mortgage, Inc. based in Hackensack, New
Jersey, “a credit rating is a method lending institutions use to rate one’s credit worthiness. R-1 is the best, it indicates that a
borrower pays on time or before payment is due. R-9 is a ‘charge off’ which means the borrower failed to honor the debt, and
the lender wrote the debt off as unpaid.”
Also of note, grace periods are being phased out and payment due dates are changed with little or no notice. For example,
G.E. Credit Corporation, who recently purchased J.C. Penney Credit Corp., does not grant grace periods. A grace period is the extra
days a lending institution gives a borrower to pay before a late charge is assessed. Without a grace period, if your payment is due
on the ninth of the month, it must be posted on the lender’s books/computers by that day. If not, three things will happen:
1. You automatically become 30 days behind on your debt; thus, it is reported to the credit bureau as a delinquent account.
2. Your account will be assessed a late charge.
3. The lender may contact your household or place of employment. Many states now allow the lender to make dunning calls all day Sunday up until 9:00 p.m. EST.
Legislation is pending before Congress to expand the lender’s authority to contact the borrower at any time as well as to make it
more difficult for a debtor to discharge credit card debt through bankruptcy filings.
So what should one do to become debt free, thereby protecting your credit rating?
1. Make a 5-year plan to pay off your financial obligations.
2. Hold one major credit card and maintain a limit you can handle.
3. Use the “Cash and Carry system.” If you cannot pay cash, try not to purchase the item.
4. Unless it is an emergency, stay away from credit card cash advances. Often the lending institution charges more for cash advances then they do for purchases.
5. Do not co-sign for major purchases (e.g., automobiles, major appliances, loan applications, etc.) Should you become a co-signer the debt becomes part of your credit history. If the primary debtor defaults, you are then obligated to satisfy any outstanding balance.
6. If you use your credit card, pay off the balance. Zero balances look positive when applying for a major purchase such as an automobile or mortgage.
7. Pay your student loan in timely manner. Should you file for bankruptcy, it is one of the few liabilities you are prohibited from discharging.
Having achieved the peace of mind of a debt-free portfolio, it is important to maintain this status. In order to do so, inquire about
monthly debits or electronic transfers from your checking account directly to your creditor. Most mortgage lenders and finance
companies will allow this method of payment. However, BEWARE, some may charge initial set up fees or monthly transaction
fees.
Along with the responsibility of maintaining good credit comes the responsibility of monitoring your credit history. Keeping in mind
that all credit transactions under your name get reported to credit bureaus, it is a good practice to review your credit history on a
yearly basis. Negative or misinformation can be challenged and removed from your record, but the impetus to do so falls to you.
The major credit bureaus are:
A. Experian (formerly TRW): (888) 397-3742
B. TransUnion: (800) 888-4213
C. EQUAFAX: (800) 685-1111
Also these agencies can assist you:
- National Foundation for Credit Counseling: (800) 388-2227; http://www.nfcc.org
- ACORN: (215) 765-1313; http://www.acorn.org
- U.S. Department of Housing and Urban Development: (800) 569-4287; http://www.hud.gov
In conclusion, a positive credit history equals security. Poor credit, along with the institutional barriers and stereotypes often
associated with young adults, will delay the positive benefits of prosperity and affluence.
Sources:
U.S. Department of Housing and Urban Development
CBS News
U.S. Department of Justice – Civil Rights Division
Emerge Magazine
The New York Times
Trenton Times
Jet Magazine
Metro
Steven E. Campbell is a Statler Foundation Professor and teaches law at Delaware County Community College, Media,
PA..
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