Page 10 - January 2024 Issue.indd

DOLLARS AND SENSE by Tolbert Rowe

Financial Hangover?

With Christmas 2023 and New Years confusion and misinformation fl ying concerned this could result in unequal
2024 in the rear view mirror, many around. credit outcomes based on their servicer.”
Americans will find themselves

suffering with a financial hangover. As In a letter to credit reporting agencies Cordray noted in the letter that part of

of November 2023, credit card debt has and credit score companies on the Department of Education’s remedy
reached a record high of $1.08 Trillion, December 12, Richard Cordrey, Chief to these issues was to instruct servicers
and the holiday season will see that Operating Officer of the Office of to put borrowers into an administrative
number increase, I am sure. Federal Student Loan Aid asked them forbearance, which means the borrower
not to ding a student loan borrower’s is not required to make payments on
The realization that credit card balances credit profile or score due to missed their loan, while the errors are being

have swelled, and high interest rates are payments while the repayment system resolved,
eating more and more of your monthly is ramping up.
payment is a wakeup call that 2024 If you have been successful in
will require some adjustments to your Cordrey stated in his letter that establishing how much of a payment
monthly budget. You also need to pay “the payment behavior of student- you are obligated to pay and who you
particular attention to how you are loan borrowers during the return to are to pay it to, I suggest that you make
managing your credit card balances. repayment does not “carry the same your payments. Do not assume that
creditworthiness implications as they because there is so much confusion
Rule #1 for showing you can manage do for other products, because of the in the student loan repayment system
credit appropriately and achieve a unique circumstances of the period.” your failure to make a payment when
higher credit score is, “Make your He noted that multiple servicers due will not hurt your credit score. It
monthly payment when due.” At the provided inaccurate disclosures to very well may.
very least make the minimum payment. roughly 100,000 borrowers. He added
However, do not get in the habit of that one servicer failed to send timely You should get in the habit of paying
only making the minimum payment, it billing information to nearly 2.5 million as much as you can on your credit card
will take years to pay it down to a zero borrowers. balance and consider the minimum
balance, and if you keep using the card payment as a safety net, only to be used

it will never get paid off . “As a result of these servicer errors, when other financial obligations are a
a borrower’s lack of payment does priority. Creditors love it when only the
It is also important to note that for not necessarily reflect their ability minimum payment is made over time
those borrowers who are adjusting to or intention to repay their loan,” he because they make more money.
having to make student loan payments wrote. In addition, because the errors
that your grace period has ended. Since are not uniform, “similarly situated As you pay in excess of the minimum
payments came out of forbearance borrowers are experiencing an unequal payment you are reducing the balance

on October 1 there has been much set of repayment experiences and I am which has the effect of lowering your
utilization rate, which leads to Rule #2.

Rule #2 in demonstrating proper credit
management is to keep your utilization
“Your Mortgage Consultant Since 1985”
rate at or below 30%-35% and avoid
Purchase or Refinance making the minimum payment as
much as possible. The utilization rate

is the current balance of a credit card in
relation to the credit limit. If you have a
credit card with a credit limit of $10,000
and you owe $9,000 the utilization rate
115 E Dover St. Ste 3 - Easton, MD
is 90%. To make sure your credit score
tolbert@baycapitalmortgage.com C. Tolbert Rowe, is not being lowered because of the
www.baycapitalmortgage.com NMLS Vice President/Lending utilization rate keep the balance below
182844
$3,000-$3,500 in this example.
410-819-3005 / cell 410-310-3520

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