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How to wreck your credit in one step: A cautionary tale

Last week, my business partner and I sat down with a couple who are trying to hold on to their house while addressing significant financial issues. The most pressing problem is that their credit scores have tumbled to the point that the bank may not renew their mortgage. As part of the credit repair process, we looked into a number of options to help them, and one of the areas we explored was the possibility of having their twenty-something son, Jason*, go on title for a couple of years to help them out. He has a reasonable job, so the expectation was that he could step in while one parent, in particular, addresses major credit issues. When we pulled Jason’s credit report, we were in for a shock: his credit was just as bad as his parents’ credit.

At first we assumed that the habits of the parents had been passed on to the child, as often happens. When we dug into it though, we discovered that while there is an element of poor credit practices at play here, the picture is far more complicated than that. In a nutshell, Jason’s credit was destroyed by a friend. A previous act of generosity – and foolishness – led to a series of incidents that will affect Jason for years to come.

A few years ago, Jason’s friend Eric* was experiencing problems getting a cell phone. Since he was new to the country and had no credit file, cell phone companies wouldn’t approve his application. That’s a problem for a young adult. Eric tried speaking with them to explain his situation but to no avail. Jason decided to help out his friend by “lending” him his profile. He filled out the application form with Eric, using his own date of birth and personal information. The idea was that Eric would use his profile as long as it took him to develop his own credit file and then he would get his own plan. Naturally, Eric would pay all the bills associated with “his” phone.  Since Eric was a good family friend, there was no question of doubting his trustworthiness.

Deception

It didn’t take long for the problems to start. The bills were initially paid late and then, not at all. When the telephone company balked at the unpaid balances, Eric used Jason’s information to obtain a phone from a second company. The first sent the unpaid balance to a collections agency and the delinquency was registered on Jason’s credit file. When Jason discovered what had happened, he spoke with the phone company but they were predictably unmoved. “It’s your information, it’s your debt to pay,” was their reply. Jason was now on the hook for that bill as well as others that were mounting with the second telephone company.

The situation turned into a full-blown crisis when Jason’s family discovered that his personal information had been passed on to yet another person who had rented a car in a different city. The third party got into an accident with the rental car and failed to pay the bill. The car rental company took Jason to court over the unpaid bills. During the process, all these bills were being reported to Equifax and showing up on Jason’s credit file. Jason and his father had to go to court to prove that Jason was in a different city on the day of the accident and therefore he could not have been involved.

Long-term consequences

In the meantime, Jason had applied to become an RCMP officer. He passed the entrance exam but hit a roadblock before being accepted into their training program when the RCMP pulled his credit and saw a long list of collections. Jason explained what happened and provided proof but unfortunately, the RCMP still denied his application. He will have to wait several years until the issues drop off his credit file before being able to proceed.

When Jason and his family discovered how his personal information was being used, they went to the police. As long as Eric has his information, Jason is at risk. When the police asked if his personal information had been stolen, Jason had to admit that he had passed it on to Eric voluntarily. “Too bad then,” was the upshot of their message back to him. They aren’t interested in chasing a guy who is misusing personal information that was freely given to him.

The only option that remains for Jason is to try to change his social insurance number. When we last spoke with the father, they were going to make an appointment to speak with their Member of Parliament. The issue is on-going as are the consequences.

I asked the family if I could share their story (with some details and names changed to preserve anonymity) because it illustrates two key points when it comes to being financially solid:

  • First, do not share your personal information with anyone where there isn’t a legitimate, authorized request (i.e. by a bank, government agency, etc). I don’t care if it’s the Pope, your best friend or a family member making the request, the answer is “no”. Identity theft, or in this case misuse, is a very serious problem that does not have an easy solution. The consequences can be devastating.
  • Second, your credit report matters a great deal. Order a copy of your file every, single year and go over it with a fine-tooth comb. Ensure that the information on your file is accurate. If you spot errors, address them immediately with the credit reporting agency (Equifax and Transunion, in Canada). And if your score is below 700, figure out why. You can read more about credit scores in my blog post here.

The whole issue of credit is pretty boring, nor does it come up much, which is likely why most of us ignore it altogether. There’s just one problem with benign neglect: there will come a time when you really need a good score, and if you don’t have one, it will be a tremendous pain in your backside. You will either be unable to do what you intended (e.g. purchase a house, obtain a credit card) or it will cost you a great deal more money. The lower your score, the more of a credit risk you are perceived to be, therefore the more you will pay.

Credit matters. So does your personal information. Be careful with both.

 

*Not their real names

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