Editorial Policy

Credit Card Phobia Can Backfire

Erica Sandberg

September 7, 2012

QDear Erica,

I closed all of my credit cards and bank accounts a few years ago because I was so upset by the big banks’ attitudes toward consumers. I am disgusted by the way big banks charge customers at every twist and turn and make a mint on the backs of workers. I am an American who deserves more than to be treated like dirt. I make very good money and want to buy a house and a ranch to retire on. How can I do this when not in the big bank system? Who will lend me money based only on my salary and not on my lack of credit cards and the like? Please do not use my real name.

ADear Anonymous,

Well you showed them!

Or did you? You want to borrow money from a financial institution, and they want to know if lending to you makes sense. Sure your salary is relevant, but so is the information that’s on and derived from your consumer credit reports. By abandoning the entire banking system, you stopped new information from being added to your reports. Without recent activity, prospective lenders will have little to go on.Ask Erica

Checking and savings accounts don’t show up on a credit report, but credit cards and loans do. When you had those products, details such as when you opened the accounts, your average balance and your payment patterns were listed. Credit scoring companies take those data and turn them into a numerical rating that lenders use to determine risk and qualification.

Your credit report is probably not blank, though, which means you still have a score. Positive information remains on a report indefinitely, so your past performance is still showing up and assessed. Most negative notations, such as late payments and collection agency activity, will be removed after seven years.

The problem is that, the older the information (positive or negative) on a report becomes, the less relevant it is. That just makes sense. If a friend asked you for a loan, you’d want to know his most up-to-date financial situation and reputation, right?

I understand that you disapprove of the way that some banks have behaved, and that’s your right. But if you want to do business with them, then you have to play by their rules. No one automatically deserves a loan. You earn the right to one. To do so, prove that you have the means to repay, and reestablish your history of borrowing and repaying with a financial institution that reports that activity.

Find a bank or credit union that suits your ethical needs. I bet that if you look hard enough, you’ll identify one that has a mission and business practices that you can live with. When you do, explain that your ultimate goal is to obtain a loan for the house and ranch. Apply for their line of credit so you can get back in the game. You might have to start with a secured card, since you’ve been away for a while. Opening a checking and savings account will help, too.

Charge a little each month and pay the balance in full. Give yourself a year or so to close the gap in your rating.

When your score is where the financial institution you’re working with wants it to be (again, talk to them, form a relationship), start talking to them about the loan. Work with them, taking the time to forge trust — both on their part and yours.

Another option: Save enough to buy the property with cold hard cash instead. It’s your choice as an American. Heck, it’s your choice as a human.

Got a question for Erica? Send her an email.