School Lenders (Part 3)

Leasing Isn't All Bad 5 More Things to Remember when Teachi...

School Lenders (Part 3)

Have you read School Lenders Part 1 and Part 2?

Once upon a time you had to be of sound character for any lender to consider giving you money. Back when credit was a tool (as opposed to the commodity it has become), lenders looked closely at your ability to get and keep a job, stay put in one place for a while, and repay past loans.

In lending terms, Character refers to your intention to repay the loan. Lenders used to learn a lot about your Character during the loan interview. With the advent of the credit scoring system, Character seems to have become moot.

A case in point: Joseph is a family man with three kids and a wife who has been off work for almost a year with their youngest. Without her full income Joseph has found it hard to make ends meet. Gina hasn't really changed the way she spends money and Joseph feels he should be able to provide for his family.

Joseph makes his minimum payments on his two credit cards every month, not a penny more. It's all he can manage. When a third card was offered, he accepted with a sigh of relief using cash advances on that card to make the minimum payments on the other two. When he found himself pretty close to his credit card limit on his third card, he applied for and received another card. And then another. And then another. And then another. And then another.

In no sensible world should Joseph have been able to qualify for all that credit. But because only the credit score was being used to grant him access to more credit, because neither his Character nor his Capacity were being taken into account, he continued to receive more cards.

By the time I got to Joseph, he had 18 credit cards and access to over $100,000 in available credit. The man made $47,000 a year! How was that even possible?

Joseph was a man of sound Character. Well he started off that way. But in an attempt to provide the things he thought he owed his family, he dug a hole so deep there was no way out. Gina talked her mom into taking the kids two days a week and Joseph's mom helped too so Gina could go back to work. Her entire paycheque went to paying off the debt. HER ENTIRE PAYCHEQUE. She was working for the BANK.

I'm all for personal responsibility when it comes to using credit. I sing that song loud and clear. But I also think lenders have a responsibility to lend wisely. And giving someone access to more credit than they can ever repay is in no world wise.

Have you joined School Lenders on Facebook yet? Have your sent your letter off to your member of parliament? Spread the word. Tell friends and family. It's time to insist that lenders learn how to lend responsibly.

Next week: More about the 5 C's.