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credit repair

I’ve stated many times in my posts that I’m aggressively paying off my second mortgage debt.  So, for anyone reading, it’s safe to assume that I’ve decided not to walk away from my mortgage debt like some people have.  Although, it’s my obligation to hold true to my word and payback my loan, I’ve never really stated what other motivating factors as to why I’m sticking out my obligation.  Sure, it’s the right thing to do, but there’s a greater reason than just paying back the money I borrowed.

The greater reason why I’m sticking out my mortgage obligation is to protect my credit score, which is based on three components: the amount of credit, credit history, and credit utilization.  Don’t ask me how a credit score is determined on these three factors, all I know is that these three components go into a black box and a credit score is computed.

My Credit Score

I talked with a loan officer in February 2010 to see if I can qualify for the Making Homes Program.   This is a program created by the Obama administration that allows qualified people to modify or refinance their mortgage.  With the current state of my home value and my mortgage amount, I tried to get my mortgage modified under this program.

However, I did not qualify.  One of the requirements for a person to qualify is they need to be past due on their mortgage payments.  This in my mind is absolutely stupid because it rewards people for having too much debt in that if someone does have too much debt, their eligible for the program.  Someone like me that makes their payments every month while forgoing luxury/convenient items to make these payments are not rewarded at all for making responsible decisions.  I’m not going to go off on a tangent about this, but you can get a sense how I feel about it.

The representative further explained one of my options was to deliberately be late on my mortgage payment in an attempt to qualify for this program.  However, I explained to him that my credit score hovered around the 796 mark and didn’t want to damage it.

Thus, he expressed that I should protect my credit score and not intentionally default on mortgage payments to try and qualify for this program.  So I shot his idea down.  Had I gone with his idea, I probably would have regretted that decision.  In the end I’m happy with my decision and keeping my credit score in tact.

The Importance of Your Credit

Credit is the key factor that determines whether you’re deemed a trustworthy person to pay back a loan.  And rightly so, people with good credit use credit to buy houses, cars, and take financing home remodeling projects.

I’ve also met people that use their credit to travel the world for next to nothing.  Yes, that’s is correct, I’ve met people that sign up for credit cards to get airline miles and hotel points to fund their next vacation.  All I can say, if they can pull it off, good for them.

Having good credit allows you to buy large purchases you otherwise might not be able to buy outright.  If you have good credit, banks will reward you by giving you lower interest rates because you’re less likely a risk to default on your loan.  Conversely if you have bad credit, banks will charge higher interest rates to make it worthwhile to them for extending a loan out to you.

I certainly did not want to deny my future eligibility of future credit by defaulting on my second mortgage payments.

If I did default, according to the previously linked article, it can take almost 7 years to repair bad credit, which is not a situation I want to put myself into.

Final Thought

I’m not a credit expert on how to build credit.  I know that my credit score is excellent and I didn’t want to have a blaring default for chance to have my second mortgage modified.  I also knew that my second mortgage balance of $34,000 is not a lot of money in the grand scheme of life.  I know I could pay this loan back in full in a few years from the rent money now that I don’t have tuition to pay for.

In the end, once this loan was paid off, I’m hoping it’s going to boost my credit score as I have another loan that is status as paid back in full, thus improving my credit score.

Creative Commons License photo credit: TheTruthAbout


For those of you that are interested in reading more about people who use their credit to travel for next to nothing, visit the blog of Frugal Travel Guy.


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