It will be a surprise to nobody reading this blog that I tend to be just a little obsessed with managing my personal finances. And by “a little bit,” I really mean “a lot.” There are no shortcuts to growing one’s wealth, and taking the time to budget, increase income, and decrease spending – all while living as well as possible – requires careful thought and planning on a regular basis.
The average person makes about $2,700,000 in his or her lifetime and the average working couple makes about $5,000,000. At first glance, this sum seems staggering so the thought of $5 per day on coffee and $100 per month on cable television seems insignificant. However, when you consider that $2.7 million represents $45,000 per year (as an adult), or $3,700 per month, or about $100 per day with which to support yourself and your family, the scarcity of that amount feels very real. After all, essentials like taxes, housing, and food will likely comprise over 50% of your income, so it’s incredibly important to ensure that you know where the rest of your money is going.
Anyway, one of my credit cards has a very useful feature of alerting me when there are notable changes to my credit score. Most of the time, the news is good and pretty trivial (“no change to your score this month”), but I still recommend paying attention to these alerts on the off chance that something has gone awry, as today’s article will demonstrate.
In early June, I received one such alert stating that there was a change to my score, which was strange because I didn’t have any recollection of any change to the major factors that affect your credit score. Imagine my shock when I saw this:
Over the last ten years, as Lady Centsei and I bought property or acquired debt, my credit score fluctuated by approximately 10 points in either direction each year. But this drop from 760 to 695 was completely unexpected.
I began investigating and quickly discovered that one of my accounts had been reported as 30 days past due by the lender. This mistake can really hurt your score! A little more research revealed that it was, of all things, my mortgage! I have my mortgage set to auto-pay and hadn’t received a single alert as to a non-payment or failed payment. How could this have happened?
I checked my account balance used to pay the mortgage, and it did seem a bit high. However, even more unusual was a tiny alert that I had a message in their portal. I opened the message and saw this, to my horror:
I had attempted to make an automatic payment on April 28th for my May 1st mortgage payment, and it failed, as well as a May 28th payment for my June 1st payment, and it, too, failed. I hadn’t noticed anything too strange in my monthly budget (aside from some expenses like gas being quite low these days during quarantine) and couldn’t understand how this failed transfer could have happened.
I called the credit union that holds my mortgage (we’ll call them “The Credit Union”). A representative picked up the phone and reiterated my worst fear – I had missed two payments and was now more than 30 days past due, so they had reported me to all three credit bureaus for a being late on my mortgage payment.
My heart sank. My legs bucked. My throat swelled up.
I began asking for more details. Why hadn’t they called me? Why had the automatic payments failed to go through? Why hadn’t they notified me in writing? How could The Credit Union be so poor at handling this process? Surely a simple call or letter would have solved this entire thing with weeks to spare.
The core issue of the failed transfers is that my mortgage had gone up in April by about $25 per month due to changes in local property taxes The Credit Union withholds for me. Basically, in April and May, I had attempted to pay the old amount rather than the new amount, so The Credit Union rejected the entire payment. And before you ask, no, they did not notify me of the increase until I called in May.
They also explained a few critical details:
(1) They interpreted the government’s guidance for banks in April regarding the virus as stating that they were not allowed to contact customers for past due amounts or collections.
Therefore, when my account was late, they believe they were legally not allowed to tell me. Obviously, if I had received any kind of communication, even a friendly reminder, I would have paid! However, the bank’s interpretation of the governmental guidance made that impossible.
Let me also state that this is dead wrong. Federal law in the U.S. suspended collections calls related to student loans and state law in my area halted the foreclosure process during the pandemic, but there were no laws or regulations against bank calling to remind borrowers of a possible past due payment on an installment loan.
A mail or phone reminder would have prompted immediate action from me and would have been 100% legal. If they had done so, this entire situation could have been avoided.
(2) They claimed that they had provided me notification of the increase in my mortgage amount in January. I did not receive this notice, and they admitted they did not send it via certified mail.
Banks and credit unions are supposed to notify their customers in writing when their mortgage is set to increase. Mine did not do this. I keep all financial documents for seven years, and I checked for the notification several times.
(3) Their policy does not allow for partial payments. I was never informed of this.
My automatic payments had both attempted to go through on March 28th and April 28th, both just $25 shy of the required amount. If they had accepted them as partial payments, I would have been current for April as of 28th and never been past due by 30 days.
(4) The burden was entirely on me to uncover the issue.
No phone calls. No mail. No e-mails. No text messages. No smoke signals. The only notification was that small message on the bank’s internal e-mail system to me, which of course is antiquated and cannot connect to my other preferred forms of communication. This issue could have continued for months if I hadn’t been monitoring my accounts regularly and my credit damaged irreparably.
(5) The initial rounds of customer service were abysmal. I had to fight tooth and nail to correct the issue.
After this initial phone call with The Credit Union, I began the arduous process of correction the payments going forward. I’ll admit that this took several of “those” 5-minute phone calls, but they were well worth it. Unfortunately, even after the payment issue itself was rectified, the incident was still reflected in my credit score. I had to correct this if I ever wanted to borrow money at a reasonable rate again.
The next three calls were to The Credit Union’s lending department to get them to correct the ding to my credit. This process could warrant its own post. Long story short, I remained calm, polite, persistent, and confident. I explained to them it was a genuine mistake under strange circumstances that caused me to miss the payment to begin with, and the fact that my record with them had been excellent for many years. It took speaking to three people (one with an attitude “you should have known better”; one with some empathy but no authority “I understand your perspective but I can’t help you”; one with the director of lending “OK, you’ve shown your point and I don’t feel like dealing with you”), but they finally removed the ding on my credit report.
What a relief!
My credit score had recovered by early June, though not without drama and stress. I confirmed the credit reporting agencies that the previous delinquency had indeed been removed. All was well with my financial world again.
Why does this even matter?
The difference between a score in the high 600’s and the high 700’s (over 100 points) could be the difference between getting the best loans with the best interest rates. Sometime in the next five years or so, it’s very likely that Lady Centsei and I will buy our “forever home” in an area of the country where the median home price in the area is just shy of $600,000.
If we were to buy median home via a 30-year mortgage, the lender often takes the lower of the two applicants’ credit scores for use in their interest rate decision. According to Bankrate.com and MyFICO.com, here is the interest rate one should expect at various credit scores.
| FICO SCORE | ANNUAL PERCENTAGE RATE (APR) | MONTHLY PAYMENT | TOTAL INTEREST PAID |
| 760-850 | 2.73% | $2,442 | $279,171 |
| 700-759 | 2.95% | $2,514 | $304,734 |
| 680-699 | 3.13% | $2,571 | $325,410 |
| 660-679 | 3.34% | $2,640 | $350,748 |
| 640-659 | 3.77% | $2,787 | $402,783 |
| 620-639 | 4.32% | $2,976 | $470,952 |
Each 20-point interval in your credit score will cost you an average of 0.20% on your mortgage for 30 years. My 100-point drop could have increased my rate by 0.50% to 1.00% depending on the lender. On a $600,000 home in our area, equates to almost $100,000 over the life of the loan.
Penny can help us reiterate this math in very simple terms.
I’m glad I worked with my bank promptly to correct this issue. Nonetheless, it’s impossible to ignore “what could have been.” One late payment without notice easily could have become two or three. Three late payments could have hurt my credit score by even more than 100 points for up to 7 years (at which point late payments are removed). This damaged credit could have caused banks to increase my next mortgage interest rate by 1% or more. I could have paid $100,000 more in interest over the next 30 years.
I blame myself a little, as I could have been more diligent. I blame The Credit Union a little more, as they could have communicated better at many points. I blame the pandemic the most, since it caused this chain of unfortunate events in the first place!
Lesson learned. Hopefully the same thing never happens to you and this story serves as a good lesson in the importance of not only managing your credit, but also handling these issues quickly when they do come up, so the outcome is to your advantage.
Now more than ever, be sure to check your account regularly and don’t postpone resolving problems.
