What Consumers Don’t Know About Credit

What consumers don’t know about credit can really, really hurt them, according to James Scurlock. Scurlock produced the excellent new documentary, Maxed Out, as a result of Scurlock’s quest to find out why America can’t get itself out of debt.

Scurlock’s Newsweek article this week makes five points:

  • 1) A high credit score doesn’t necessarily mean you can pay your debts; it just means you have lots of available credit.
  • 2) Banks will lend you more than you can afford to pay back because they make most of their profits on the least responsible consumers.
  • 3) Bankruptcy is not an easy way out of debt; most bankrupt Americans finally resort to bankruptcy only after their banks have demanded upward of three times what they had originally borrowed.
  • 4) The government is not looking out for you. Congress and the courts have repeatedly sided with industry over the consumer.
  • 5) Credit card agreements and mortgage documents are so complex that even experts have difficultly understanding and interpreting them, let alone the average consumer.

Scurlock’s observations serve to remind us that the consumer must be her own best advocate. About the most important thing you can do is obtain your credit report once a year and be vigilant about reporting anything that doesn’t belong there. Although it seems counter-intuitive, you should complain to the credit reporting agency that reported the bad information (Experian, Equifax or Trans Union), not the credit furnisher (bank or finance company). The credit reporting agency then has a legal obligation to investigate the bad information and correct it. If it refuses to do that, you may have a right to take legal action.

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