One question I frequently hear is how to responsibly rebuild your credit after falling behind on your debts—whether or not you have actually filed bankruptcy.
To help with this question I had the pleasure of having Mr. Patrick Redo, CEO (not president) of the Monterey County Employees Credit Union on my radio show. Check out our conversation here!
Pat, what are the benefits of starting a relationship with a local credit union rather than, say, a large national bank?
- We are locally owned and operated, loan decisions are made by us and you can talk actually come in we will discuss your finances in a private office.
- We offer 99.9% of the same services as the larger banks and our incentive is to earn your trust and loyalty so that you consider us for all your financial needs. We would like to take the time to get to know you and how we can help work to better your life as a student, first time homebuyer, young parent or in retirement.
- We have Rewards Checking, FREE telephone, Bill Pay, On-Line and mobile banking in other words access in person or electronically you control the banking experience.
When a consumer is starting to have financial trouble, is it really helpful to contact a creditor before collection calls begin?
- Definitely, at our credit union we will gather the same information from you that we requested when you took out the loan originally as we are trying to determine if/how we can help you afford the loan payment you currently have.
- We have been able to rewrite the term and rate on loans to help the borrower if they are doing their best to honor their commitments. We will also be honest and tell you if you have put yourself in a corner or on new loan requests strategies that can help you towards a positive solution although sometimes that may take a little patience on the borrowers part.
- We believe in relationships and the basis for that trust is communication. We will always try to minimize damage to credit reports as you are borrowing money from the other members of the credit union, not a corporation, and as an owner you are helping our community by repaying the debt so that others can borrower your portion.
Pat, we hear frequent advertisements from folks who claim they can rebuild your credit “in no time” or even slash your debt balances by large amounts. Are these claims credible?
- Unfortunately, unless you are working with a reputable company and I would start with the Better Business Bureau or a good lawyer it is as the old expression says, “if it sounds too good to be true, it probably isn’t”. Quick cash and title loans are usually high rate loans creating longer term problems.
- Again, I would start with you financial institution and if they are not able to help talk to a reputable financial advisor as most of these companies you mentioned are here today and gone tomorrow not unlike mortgage companies in the height of the real estate bubble.
How can building a relationship with a credit union help a consumer rebuild his or credit?
- Something as simple as establishing a savings account to use as collateral for a credit card, by law we cannot charge more than 18% on any loan regardless of credit score and that is substantially lower that banks and in many cases lower than their starting rate on credit cards for example. We offer a Loyalty program where we can reduce your rate up to 2% if you make your payments on time and otherwise improve you score over 12 months and then up to another 2% in the second year. We want to set our members up for success.
- Those people who have claimed bankruptcy and not caused a loss to our credit union can get a loan from us. No different than any loan request we will ask for proof of income, run a credit report and follow the normal process asking for explanations as to what caused the bankruptcy. If you have paid on your Chapter 13 you are more likely to get a loan, a Chapter 7 is a little more difficult unless it has been discharged for over a year. We will also consider loaning to you if your medical related expenses have created a financial hardship.
- I had mentioned patience in the answer to your previous question and I suspect that if you attempt to borrow $10,000 and we tell you why $5,000 may be all you can afford and to set your sites lower for the short term it allows you to develop a strategy to rebuild plus the knowledge of why/how you can build for the long term.
Thank you so much, Pat, for your very helpful comments. Folks, it never hurts to get input from the professionals who deal with credit every day. I have recommended credit unions to my clients for many years as a step on the path to re-entering the credit world on a responsible basis. Pat’s comments reaffirm this belief.