“How important will my credit score be to me in 2 years or 20 years?”
One of the things that I have noticed in speaking with people over the years about their finances is that many people are very interested in their credit score and accessing more credit in the future. People with high credit scores typically want to keep it high and people with lower credit scores typically want to maintain or improve their credit scores.
That is quite a predictable ideal of course. Even people who rarely or never use credit may still find re-assurance in the idea that they easily could get credit if they wanted, like in the event of an emergency.
The trend of the last several decades has been an easing of the standards required to access credit. Forty years ago, the standards to qualify for a mortgage were much higher than in recent years, especially during extremes of the sub-prime boom. Typical down payment levels went from ten or twenty percent down to one or two percent.
“Easy credit” has been the trend, but that can change. By early 2003, I forecast a shift in that trend from easier and easier credit to more and more conservatism by lenders. By late 2006, I specifically warned of a seqence of emerging developments (a global credit crisis) that would topple many financial institutions, and then those developments came to public recognition by 2008.
As financial institutions continue to struggle, they may be less eager to lend in general (if able to lend at all). Institutions may be especially less eager to lend to certain debtors perceived as unreliable, including struggling governments like Greece, struggling corporations like AIG and Enron and Merrill Lynch, and of course struggling consumer debtors.
A history of staying current with prior debts may not be enough to impress prospective lenders in the near future. They may require twenty percent down or even more before they will even review a credit application. In other words, global credit markets, after decades of easing, may return toward the prior norms of prior centuries.
Note that the current global financial network is an unprecedented development. The sub-prime mania of “no qualifying” loans is a historical anomoly of easy credit.
In a credit-based financial system, credit scores may rise in importance. However, if a credit-based system falters, large cash down payments may be much more important than prior payment history in regard to interesting a seller in an installment plan.
Note that I did just say “interesting a seller.” Individual sellers may be the ones issuing mortgages- not lenders, but the current owners of real estate.
Institutional lending to consumers may shrink or collapse. While mortgage companies currently allow many people to pay installments, the mortgage industry also can shrink or collapse. Sellers like to get paid cash by mortgage companies and be done with the transaction, often because they owe mortgages on the property as well and need the cash to pay off that mortgage to be able to sell a property.
My forecast remains (since early 2003) that the mortgage industry is in crisis and that many lenders will collapse in to the bankruptcy court systems (of the US and elsewhere), which will take over their finances. Governments (specifically the bankruptcy court system) will take over not only the accounting of a collapsing mortgage industry, but all of their assets (such as bank-owned properties).
Another name for this arrangement might be communism. The court system will directly manage huge portions of real estate (this is predictable in the US and elsewhere such as the EU and Japan). The court system (through the bankruptcy court trustees) will directly manage the payment processing and accounting for all of that real estate. The court system will even become a primary seller of real estate (at foreclosure auctions, unpaid property tax lien auctions, and so on).
I do not know how much real estate the US government currently owns, but it is quite a lot. Since I forecast the economic downturn, I also forecast the decline in government tax revenues, the budget crisis of governments, businesses, and households, as well as the predictable reactions of those parties in crisis. I forecast that among the last of the alternatives discussed for addressing the issues of the US government’s budget and debt (as for most any other government) would be the selling of assets, such as the vast amount of real estate owned by the federal government, including in foreign nations where the US has military bases and other assets.
So, in addition to the vast amount of mostly rural real estate owned by the federal government, the real estate of any mortgage company that falls in to receivership (bankruptcy) will also be managed by the federal government. In cases where insolvent mortgage companies owe money to the federal government (including the IRS), the government would soon directly be the full or partial owner of the prior assets of the insolvent mortgage companies.
Again, this development might not be called a communist revolution, but perhaps just an incremental transfer of affluence toward public bureaucracy. Again, I began detailing these predictable developments in early 2003. While many of my published analysis of investment markets did not focus on this particular long-term issue, such as “the Real US Deficit: OIL” in 2004 and “Worth it’s weight in… OIL” in 2005, I was focusing on the simplest causes and emerging short-term effects in particular, rather than on the long-term implications.
In private conversations, I have never avoided the fact that the obvious implications that a credit crisis of the scale I forecast would predictably resolve in to a massive bankruptcy spree (and directly said so in many publications). I have also directly mentioned the “bottleneck” that I expected in the US bankruptcy court system in particular (because I am not so familiar with the EU or Japanese bankruptcy court systems). A bottleneck means that the court system would not be able to quickly handle the administration of a massive surge of bankruptcy cases that I predict. A government may or may not rush to efficiently resolve such a bottleneck.
What can we do?
Some people propose to march on wall street or otherwise promote a more direct communist revolution of the working class proletariat herd. That might work. In Tienanmin Square in China, it did not work so well though. Of course, I think that the government there already directly owns or indirectly controls (thorugh licenses and permits and so on) virtually all economic activity there. Is it really a “solution” to speed up a process for which the federal bureaucracy may not be prepared? Or would the urgency suddenly inspire efficiency (and how about “equity” and “justice”)?
Some propose a new constitutional convention and even what amounts to a civil war against the court sytems and other government bureaucracies. That might work, too. Of course, the last civil war in the US did not go so well for the secessionists.
More immediately relevant than those long-term collective endeavours is prudent adaption of one’s own financial choics. I mean to work the system as in “work WITH the system.”
In years of work with a bankruptcy law firm and otherwise, I realize that most people do not use the protections of the laws and court system, perhaps because most people do not know the protections of the laws and court system. A first step, for those with assets and revenues, is to appropriately shelter your assets and revenues, protecting them from current or future claims by creditors or plaintiffs. A few hundred dollars spent on conservative precautions can save thousands of dollars in legal costs (and one may even lose any lawsuit that arises).
“Appropriately shelter” means to identify current legal protections and use them, yet do not exclusively rely on those legal protections to be enforced or continued (as sudden political change is increasingly possible). Use privacy and even secrecy when possible so as not to have to rely on court officers to resolve any legal controversies at potentially great delay and great cost (from attorney fees and court fees and of course possible losses due to new laws or new constitutional amendments and so on).
Also, many people vastly over-estimate the value of their credit score relative to the value of their cash, cash flow, and assets. If the lending industry collapses (or if you lose your job), how much value will a great credit history be for you?
Further, many people vastly over-estimate the long-term value of their real estate holdings and stock markets holdings (including in pensions and so forth). Market prices in 2005 or 2011 simply do not predict future prices.
Most people do not have any major protections in place to insulate their assets and revenues from future or current liabilities (debts, lawsuits, etc). Most people do not have any awareness of the vast array of exemptions and protections of bankruptcy law, which is the foundation of all contract disputes, as bankruptcy courts are functionally superior to all the inferior courts that handle lawsuit cases for individual contracts. Anyone who goes in to a contract dispute without an awareness of standard bankruptcy protections may find that a huge court judgment which costs them time and money to produce may be entirely worthless. Debtors or targets of lawsuits who have planned their finances around the protections of the law may have a much more relaxed and simple experience in the event of a contract dispute or legal controversy arising.
I promote the use of exempt shelters (such as charitable trusts that qualify for protection under bankruptcy laws as “spendthrift” trusts). I also offer services of managing the investments of trust funds to fit with the present opportunity and volatily of markets. Just as most people have no idea about the protections of bankruptcy law, most investors also have no idea about the realistic risks and opportunities of markets like real estate, stocks, currencies and commodities.
Just as court systems are designed for the orderly redistribution of wealth from one party to another, so are investment markets. There are always emerging opportunities unknown to the masses. Average methods never produce above average results. Only above average methods produce above average results, and only far above average methods produce far above average results.
Related articles
- Credit Vault Publishing Does it Again – Reveals all the Secrets of the U.S. Credit Scoring System to Mortgage and Real Estate Professionals across the Country (prweb.com)
- Tips for Improving Your Credit Score (ally.com)
- How Does a Short Sale Affect your Credit Score? (markaalto.wordpress.com)
- A strong credit score can get you a better mortgage rate (freedommortgage.com)
- Credit Vault Publishing Shows Millions of American Families how to Raise their Credit Scores by up to 100 points in just 6 – 12 Months! (prweb.com)
- Rent Your Way Out Of Foreclosure And Into Homeownership (businessinsider.com)
- Bad Credit Loans A low credit… (theaaroncraig.com)
- Demystifying Credit Scores (yourhomeismybusiness.net)
- Negative Credit Loans – Simply no Credit Verify (boldstate.com)
- Is Credit Sesame a Scam? (bargaineering.com)
- Poor Credit Record Cannot Stop You from Applying for a Mortgage (pro2sell.com)
- Housing crisis to end in 2012…as Banks loosen credit scores. (eastbayhome.wordpress.com)
- Keep credit score in mind when applying for a mortgage (charlotte.news14.com)
- The Top 6 Misconceptions About Credit Scores (forbes.com)
- Your credit score can make or break the mortgage rate you receive (freedommortgage.com)
- Mortgages; Taking Custody of the Loan – Repost by JP & Tracy (recentlyseparatedwhatisnext.wordpress.com)
Tags: bankruptcy, bankruptcy exemption, bankruptcy protection, budget crisis, communism, credit collapse, credit crisis, credit repair, credit score, debtor protection, deflation, deflationary collapse, deflationary spiral, down payment, easy credit, economic downturn, economic forecasting, Enron, financial forecast, forecast, forecasting, improve credit score, legal protection, mortgage industry, staying current, stock, sub-prime, sub-prime crisis
