Is the worst of the recession behind us? There’s no easy answer to that question but at least some recent data and reports suggest that there have been improvements. The problem is that for many people, the true difficulties are just beginning.
Imagine this scenario – a married couple (Joe & Jenny) with 2 young children living in the Midwest. They are both working and own a modest home. They are not frivolous or irresponsible and pay their bills on time. They have some credit card debt but it’s nothing that they can’t handle. They have access to even more credit but since they don’t need it, they don’t use it. They are living the quintessential American life. Both Joe & Jenny enjoy credit scores in the low-700’s.
Then the boom lowers. Because of the falling economy, customer demand at Joe’s company has decreased sharply. Joe works at the manufacturing plant and is told by his supervisors that the plant is closing to “cut costs.” They’re very sorry but Joe doesn’t have a job anymore. Hmmmm, Joe doesn’t have a job anymore….and it’s not Joe’s fault.
A few weeks later, Jenny comes home with the news that her company is closing altogether so she too is out of a job. So Joe & Jenny have no jobs but what do they still have? Yep – 2 young children, a mortgage, other bills to pay, and a whole lot of fear and anxiety. After all, unemployment benefits only last for so long and they don’t come close to covering even the entire mortgage payment.
This goes on for weeks and months. Joe & Jenny try to find odd jobs but there isn’t much to be had. Unemployment benefits are almost at their end. Thankfully, the kids are being fed and they still have a roof over their heads but all of the stress is taking its toll on their once happy marriage. Their health begins to decline. They are emotionally and physically exhausted.
FAST-FORWARD to when things finally start to improve – for good. Joe & Jenny have jobs again, the kids are happy, their bills are being paid, and everything seems to be looking up. The couple goes to the bank for a loan for a new car. Uh-oh! The loan officer looks at the not-so-stellar credit reports and breaks the bad news: Joe’s score is only 630 and Jenny’s is 655. Neither meets the bank’s threshold of a 685 credit score.
Joe & Jenny try to explain their story to the loan officer but he has his marching orders. Joe & Jenny simply don’t qualify. It’s the score that matters, you see. The story is just a story.
OK. STORY-TIME is over. This scenario or something eerily similar will be played out many times in the next 5-10 years. Through no fault of their own and due to circumstances beyond their control, consumers have seen their credit ratings take enormous hits. So when the storm finally breaks, will credit unions join in the “business as usual” parade and value score over story?
Or will credit unions continue to take the high road and actually listen to their members? Credit unions have gotten very good at doing it this way. Let’s hope it continues. Otherwise, credit scores that have taken a hit will prevent otherwise qualified individuals from accessing the credit they need to start purchasing things again. I’m pretty sure I heard an economist or two state that consumer spending is needed to jumpstart things. Just one example of this is the housing market. The housing market will only improve when people start buying houses again – the problem is that so many would-be homeowners went through the Joe & Jenny scenario and are unable to qualify for mortgages.
So the question now and for the near future at least is –Will credit unions have the courage to put credit STORY before credit SCORE?