Today’s 550 credit score may very well have been yesterday’s 780 credit report.
When I look at a credit report, I am surprised that it is struggling to rate borrowers who once had very high credit scores. Most once had six-figure incomes with a credit report well above 700. These factors place these borrowers in A-paper categories.
Take Robert, a real estate investor who has borrowed millions of dollars over the years. With a credit score close to 800 and a strong history of paying bills on time, lenders lined up for borrowers like Robert. I was personally involved with him for over ten years.
What happened? Like many others, Robert was a victim of economic times. No, he did not overspend and when he called me last week, I learned that he had never taken equity from his properties. Robert was a conservative. It kept its rents below market to keep tenants long-term.
He bargained hard with me to get long-term fixed rates on his mortgages and when faced with an ARM, quite common in commercial properties, he worried for 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 the buildings for months while the courts go through piles of paperwork? Imagine the feeling you would feel deep in your stomach … This is what happened to Robert.
With no income, he continued to service the debt on his properties until his savings were exhausted. With the promise of a solution just around the corner, he finally took advantage of his lines of credit. Credit cards with high interest rates, but also with huge limits. After all, Robert needed $ 25,000 a month just to pay off the mortgages.
When he got to my office, I noticed that he had lost weight. The kids were still in college, he told me, but they had to get loans to finish. His wife returned to work and they moved from a custom house on the hill to a house in the city.
He was still playing golf and smiled easily when he talked about his sleepless nights and could almost see a tear when he talked about the children.
“I should have stopped paying before taking advantage of my savings, but I felt like I had to make the payments.” he said.
Robert, like many of us, wanted to do the right thing. And that meant paying, regardless of personal misfortune. Robert also tried to satisfy his other debts, but he was creating a flood of debt by trying to do the right thing.
Ultimately, he could no longer bear the financial attack and, after conceding, he let go of his properties. One by one, he lost them when the tenants threw in the towel along with their keys. Some major companies, which I will not mention by name, ended up with a family.
I like Robert, I have always liked him and, to me, he is still the same man I knew ten years ago. He is honest and a good father. Although we do not travel in the same circles, I imagine that he would make an excellent friend. I know his wife loves him and it got me thinking about the people, his credit report and the debt they accumulate.
Do people like Robert pay their bills just for a credit score or some deep-rooted honor? On the other hand, how much is a credit score really worth? Why didn’t you stop paying earlier? Perhaps a lot of misery could have been saved.
I deal all the time with people who put their entire identity on their credit score. High-income people tell me they are honorable. That they pay on time and have little debt. Others, with lower scores, tell me their story and, aside from the circumstances they encounter, I think any of them could be interpreted as honorable. A lender might be swayed to lend to someone with a high credit score, but I would lend Robert money whatever his score.
If you’ve lost everything, like Robert, remember what you have and try not to put too much emphasis on your credit score, as it qualifies you as a person. Sure, you can clean up the credit. It can work to increase your credit score, but try to remember that a number does not define you.
