Let's word associate: banks, mortgage brokers, credit card companies, credit reporting agencies, debt collectors, payday lenders.... Words like "daunting," "challenging," "black box" and "scary" come to mind. Most consumers I speak to express fear of the unknown -- and fear of being humiliated at the checkout counter, the restaurant, in front of friends and family. Imagine, if you will, you are a grown-up at your own circumcision. How do you challenge them? What do they want from you? They have the power to deny you the house, the car, the apartment, the education, even the job you want, or rip your possessions from your hands.
There is a new world of consumer empowerment out there. Thanks to laws like the Credit CARD Act, the Dodd-Frank Act and people like Elizabeth Warren who has long defended consumers and honest business owners by demanding a system, fueled by financial literacy, where a level playing field exists by virtue of transparency, easily decipherable disclosures and all teams playing by the same set of clearly defined rules.
The fruit of Warren's work recently celebrated its first anniversary. The Consumer Financial Protection Bureau is already making serious in-roads by introducing shorter, clearer mortgage and credit card contracts; honestly evaluating consumer products and services; soliciting and publishing consumer complaints and businesses' responses thereto; studying various consumer trends; developing, implementing and enforcing rules and regulations that are pro-consumer and not anti-legitimate business.
While all of this is yet a work in progress, there has never been a more auspicious moment than the one the CFPB is now providing to Americans of every socio-economic variety for consumer empowerment. Therefore, as we are demanding the business become more accountable to the American people, it is now our turn to demand greater accountability of ourselves. It is time for a paradigm shift in our thinking.
1. Your credit profile is a résumé, not a rap sheet.
When it comes to dealing with America's credit system, when not conceiving of themselves as economic serfs facing off against the feudal lords of credit and finance, consumers have a tendency to think of themselves as the lucky winners of some hard-to-win sweepstakes. A lot of people see credit -- good, bad or indifferent -- as something that happens to them, not something that can be nurtured and managed properly and, of course, protected.
2. Your credit report is an asset.
Your economic reputation must be built thoughtfully, carefully and strategically, trade-line by trade-line. You should protect it the way you would a priceless diamond. Understanding what you do; demanding answers before you engage in any transaction; asking the tough, sometimes uncomfortable questions about the risks and rewards of any deal, before you sign on the dotted line (or click the equivalent), engenders intelligent decisions.
3. Build a portfolio.
I know it's akin to navigating the Gobi Desert on paper, but you really need to read what will hopefully be shorter, clearer mortgage documents and credit card contracts before you take the money or apply for the card (and always think of the downside). Take the time to study notices received from financial institutions (and either opt-in or opt-out where appropriate). Do your own cost-benefit analysis of a particular field of study before applying for a student loan (will you ever make enough money as a writer to pay for that MFA?). Check your bank and credit accounts online daily to ensure that every transaction you see is really yours and not an early warning sign that you are a victim of identity theft. And, learn how to read a credit report, obtaining a free one from each of the bureaus every year at www.annualcreditreport.com. It's your job (and legal right) to demand that inaccurate information be removed and incomplete information be updated. If you want a peek at your credit score, the Credit Report Card can give you a snapshot and also show which parts of your credit report are holding you back. These are all ways to demonstrate to yourself and others that you are deadly serious about building a valuable personal credit portfolio (just as a professional money manager goes about building a meaningful investment portfolio).
4. Shop around and play hard to get
Credit can be quite expensive. The companies that offer it make lots of money. They are not 501c3 charities. There are no favors in credit. Shop around for the best terms. Never forget that every dollar you overpay for a borrowed dollar due to higher interest engendered by a sub-prime credit profile is one less dollar that is available to buy whatever you want to enhance your life or to invest in a more secure future for you and your family. The better your credit, the cheaper the deal -- and even if you have good credit, there are always better deals out there if you take the time to find them.
5. You are a Credit Warrior
The ultimate guardian of the consumer is the consumer. No one has a greater knowledge of what you do, nor a greater stake in your financial security than you.
Elizabeth Warren set the framework when she first envisioned the Consumer Financial Protection Bureau, and its director, Richard Cordray, doing the gut work in the public trenches. Now it's your turn, Credit Warrior.
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