My wife’s friend ran into a dilemma – she needed a new car for her family, but didn’t have the necessary funds for a full payment. Because she has no debt of her own, a credit report doesn’t exist under her name. When she presented this situation to the car dealership, the financial officer told her to get a credit card, purchase something with it, and only pay the minimum amount. Once completed, the credit bureaus would be notified, resulting in the generation of a report.
And with that, another debtor would be born. It’s hard to believe that, even after the events leading to the Great Recession, those who work in the financial world are still telling customers to go into debt when they don’t have significant incoming funds to make their needed purchases. Though they can decipher their client’s financial situation via requested paperwork such as pay stubs or utility bills, credit reports are still relied on to make certain customers have regularly paid off debt.
It’s a vicious circle without a break. Should it continue, families will never separate themselves from the cycle and eventually pass the debt onto other generations in their family. Luckily, there are ways to avoid going into debt if you don’t have any, or avoid going into greater debt. If only some people take this advice, it’s a few less who will need to be at the mercy of their credit reports.
Don’t Purchase What You Can’t Afford
Say you want to purchase a car. Do you go for the newer model costing $400 a month in payments or do you put cash together for an older vehicle you can pay for outright? If you want to avoid debt and the creation of a credit report, you go for the full payment option. It may take a longer period of time to purchase, but the vehicle will be owned solely by you.
Hefty Down Payments
In cases where debt is inevitable, like the purchase of a house, you want to mitigate the amount to pay down as much as possible. As with a vehicle, don’t purchase a residence which is more than you can afford. When you decide on a home, put down the largest deposit possible, around 20 percent. If doable, consider taking a 15-year mortgage over the standard 30-year; the payments may be slightly higher, but the debt will be paid off much quicker.
Freezing Credit Reports
If you’ve paid off your debt and don’t want the debt creators to take a look at any of your records, you can request the freezing of your report at the three major credit bureaus. When this occurs, the only way financial representatives can view your credit report is when you provide a password. The downside – some institutions may deny you credit if they can view the reports. The upside – If you’ve paid all your debts, you can pay for what you need in cash.