In the world of lending, three simple words can affect your future in ways you might not realize: paid as agreed. The impact these three words can have on your fundability is massive, so you have to get familiar before you take any big gambles. Merrill Chandler dives into the repercussions of having the words “Paid As Agreed” on your credit report. Times are getting tough in the lending world, so you have to make sure you can get out there confident in your fundability. Let Merrill guide you through this, and how this limits your choices down the line.
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Can “Paid As Agreed” On Your Credit Report Hurt You?
Paid As Agreed
Nowadays is something that is of increasing importance for not just times of personal financial crisis or even global financial crisis. We need to understand exactly how our behaviors affect a lender relationship and what ‘paid as agreed’ means. We’re going to cover a whole bunch of variations on this. Think of it as a pie and we’re cutting out slices of this pie because there are many ramifications during times of crisis, especially in times of our global pandemic that we’ve had here.
In this episode, we’re going to be talking about what does paid as agreed mean. There’s a number of ways for us to slice this because there are many ways that we, without knowing, cannot keep our agreement with the lender. When we don’t keep our agreements with the lenders, we’re going to end up in that delinquency mode. Let’s start at the top. First of all, how do the credit bureaus record all of this? For those of you who are in the know, once a month there’s what’s called a reporting date, meaning every creditor, every lender reports account status to 1, 2 or all 3 of the credit bureaus. That’s on the credit account reporting date.
What’s being reported is the status. Was it paid as agreed? Paid as agreed means the date by the due time and the minimum amount that was required. On loans, that’s the loan payment, on revolving accounts, that’s a least the minimum payment. We have to remember that while we evaluate every one of these scenarios that we’re coming up against. Paid as agreed is paid by the due date and time and the minimum amount for either loans or the minimum payments for revolving accounts.When we don't keep our agreements with lenders, we're going to end up in delinquency mode #GetFundable Click To Tweet
Let’s take a look at a couple of things that some of our students and clients have expressed. There’s a financial struggle, either personally or globally, and both these rules are in effect every single time. The borrower behavior that is being measured is are you keeping that agreement? Some people who run into problems like in a personal financial struggle, financial injury, losing a job or otherwise, they’ll look for a payment consolidation.
The way it sounds is if you go to one of these consolidating companies, they will make you an offer and say, “We will combine all of your debt and we’ll lower it so you make one monthly payment and we’ll pay all of your credit cards.” What they don’t tell you until you’re signing the paperwork in fine print is that what they’re doing is that they are charging you one payment, but they’re going to every single creditor and they’re saying, “We want to negotiate. Our person is in hardships.” These are the words they’re using.
They’re not telling you that they’re using these words about you. I’m not saying that they’re not true. You may be in hardship, but what they’re representing to your creditors and your lenders is this person is in hardship. We’re trying to avoid bankruptcy and they cannot afford the minimum payment. We’re telling the creditor that it’s not going to be paid as agreed because of due date and time and the minimum payment. They cannot afford your current minimum payment. Will you please negotiate to lower the interest and lower the amount that we are paying?”
You do this with 2, 3, 5, 7 accounts and sometimes as advertised, they can lower the payments by 20%, 30% sometimes or as low as 50%. If your revolving account, your credit card debt, let’s say all the minimum payments equal $600 a month. They may get it around $300, $350, $400. You’re like, “Yes, this is awesome because I’m saving $200 a month.” Here’s the problem because you’re not making that minimum payment. You are now not paying as agreed. There’s not an exception to this. Every single time, not paying it as agreed is going to show a 30, 60, 90, 120-day late. What they won’t do is a charge of the account because you’re in what I call a home-grown Chapter 13 bankruptcy. A Chapter 13 bankruptcy is formally through the bankruptcy courts, you do this process, lower payment, and then you retire your debt. Your credit is taking a crazy hard hit by being in Chapter 13. The same effect occurs on your profile. You have 1, 2, 3, 7 creditors that you’re not making that minimum payment and as a result you’re getting 30, 60 90-day late across 2, 3, 5, 7 accounts.
It’s going to obliterate your profile. It’s going to kill your golden goose. Sometimes we have to do what we have to do. I’m not saying don’t do this. I’m saying this is your last freaking resort. You don’t do this unless you’re ready to crash your entire personal profile. As I’ve taught in every way possible, your greatest asset is your financial reputation. You should be selling houses, cars and do anything to protect your profile if at all possible, especially if you’re going to use that profile to leverage your way out and take advantage of whatever’s new. If we’re in a recession, if we’re in a growth phase of appreciation for homes, if you’re real estate investor, if you need your credit and your financial reputation at any time in the future, you’ve got to do whatever it takes to protect it.
If you decide to throw it all away, then one of these services can help you lower your cashflow, but in the process you will ruin your personal credit. The next thing you need to understand about this is that they’re going to close the account. You don’t get to keep an active account and not be paying your minimum payments. They’re going to close the account. You’re also burning the relationship with that lender until at some point in the future, you pay back all that amount that you didn’t pay. This credit card consolidation is the worst thing that you can do besides all the other worst things you can do. I need you to be aware. Do walk this terrain carefully.Your greatest asset is your financial reputation #GetFundable Click To Tweet
If you’re a student or client, talk to your advisor team. You’ve got to make sure that you know how to navigate these. These are treacherous waters. They are dangerous and you’ve got to know what you’re doing. That’s one way where you don’t pay as agreed and it’s going to kill you. Kill your fundability and your personal profile. Do not confuse this service that we talk about debt consolidation with a debt consolidation loan. Remember so that they can get under your skin, these debt consolidation services are going to make it sound like you’re getting money to pay this off. What they’re doing is they’re negotiating on your behalf for your creditors. They’re lowering the payments. You’re making one payment so be wary.
You cannot be deceived by what they’re saying. Consolidation services are not consolidation loans. The next thing is if you have a good profile and you are still fundable, many times you can get a Tier 1, 2 or 3 loan that’s a loan and pay down the balances of your revolving accounts. You’re literally doing a debt consolidation loan, not a debt consolidation service. Keep those separate. Remember, that consolidation services are a wolf in sheep’s clothing. They’re going to sound like one payment means that they’re giving you money and they’re not. They’re negotiating lower payments and it’s going to kill your profile. A true debt consolidation loan is not going to crush your profile.
It’s going to alleviate those balances in the revolving account’s portfolio. You’re going to have a higher score and you’re going to start the 24-month lookback period better off because as soon as we can age lower balances for 3, 6, 12, 24 months, you’re on your way to greater fundability. We’ve talked about debt shifting strategies. We’re not going to be talking about those debt shifting strategies now. Let’s go into the next piece of the pie here. That’s debt consolidation as a way not to pay as agreed. One of our funding hackers asked this question. Thank you for weighing in, Forest. He asks, “Does getting a forbearance from a lender during this pandemic have a negative impact on your fundability?”
We’ll start there first. Let’s talk about getting a forbearance. Forbearance is a fancy term for delay a payment or not make a payment. That payment is added to the end of your loan with the applicable interest. There’s a revolving account version and then there is an installment loan version. We’ll cover each one of those. Let’s talk about installment loans. Those are your cars, your mortgages, student loans. There are lots of offers in the pandemic environment that we have experienced or experiencing. Those individuals who are government-backed loans were the first ones up on the docket for forbearance. Meaning for a payment forgiveness or payment deferment. What that means is like student loans. Student loans have been put off for six months up until I believe in September 2020. They’re put up. No interest is being charged and added to the backend.
No payments are being required. The reason is these loans are being serviced by independent companies, but they’re backed by the federal government. The feds are saying, “If we’re backing them, we’re going to take care of this and you don’t have to worry about making those payments. We’re trying to lighten the load of the borrower out there so that we don’t hit a hard landing as a recession tidal wave is on its way towards us. That’s one thing. Mortgages are being offered. Mortgage deferment or forbearance simply means that we’re going to push a payment back. Some of the Tier 1 lenders, the Chase’s, the Wells Fargo’s of the world, many of them have offered a minimum of three months, some even further. You have to check who’s carrying your mortgage. They’re saying you don’t have to pay.
We’re going to show you as current on your credit report. That sounds awesome. If you have to take advantage of it because you’re trying to stay in the game, not lose your house and not go late, then you have to make that decision. I’m going to tell you what that means. A lender, because they’re being backstopped by the federal government may say, “I will let you miss three payments. I will continue to show you as current. By the way, bracket this as well, you realize the controller of the currency has suspended the mandatory credit reporting rules so that they can do this. Technically, if somebody misses a payment, it is a federal statute that they have to report you as 30, 60 days late, etc. There’s a ramification, there are regulations. I can’t say it’s a statute. There are regulations for accuracy in reporting because they want to be able to trust the system that somebody misses.If you take advantage of forbearances, lenders will remember. Click To Tweet
It gets reported that they missed. The comptroller of the currency in concert with the Federal Consumer Protection Bureau, the FCPB, which was established with Obama’s administration. The Federal Consumer Protection Bureau suspended the requirement to report. Lenders are safe to be able to make the offer because they’re backstopped by the feds. You can see these dominoes falling. They’ve decided that they can keep you current for that 90 days or four months. Some have even offered up to six months if required, but you have to do a means test. You have to do a proof that you need not to pay. That is credit reporting, but that’s not your relationship with that lender. We’ve got to keep them separate because the federal government says, “I’m going to let you miss payments and the bank is going to support you in missing a payment. They’re even not going to report you negative.”
The Rules Of This Game
It does not change how the underwriting software of that lender measures you. It does not change it. This is where we, as professional borrowers or consumers, we’re now in a path that splits. We get to decide. We can always make a new decision later, but I’m telling you the rules of this game. If you take advantage of this forbearance, if you do not pay for 1, 2, 3 months, the lenders will remember. It will be in their databases and it will be in their performance data on you. The things they’re measuring, they’re going to know that you took advantage of this option. I’m saying take advantage of it if you have to. Cassius King, if you need to keep afloat, then do so. You don’t have to do it now. Do it when you need to or must or have to because the lenders are measuring.
This is one of those that we’re all learning how we show up under stress. If a lender sees that come hell or high water, you had their back then in every way they’re going to have your back because they trust you with their money in times of prosperity and they will even approve you now. My clients are still getting new funding approvals, brand new business lines of credit and getting automatic limit increases. It’s happening because they’re in the bullseye. We’ve talked about this in other FPLs and other podcasts. They’re hitting the funding bullseye. They’re not out here on the outer rims of the target. They’re hitting the awesome borrower bullseye, the professional borrower bullseye. This is important. If you can afford it, pay every payment.
Show that you can pay as agreed. If you can pay as agreed during these times of stress, your paid as agreed is going to bless your fundability for the next 5 to 10 years. In a time of stress, you found a way to take care of them. Do you think they’re going to trust you more or less in times of prosperity? You pulled through the refiner’s fire. You pulled through the hard times and you did not take advantage of free payments. This is one of those strategies where it is going to be a home run. In my bootcamp, we talk about how to leverage borrow behaviors. Every single behavior that’s being measured is worth 5x to 10x for your future funding as well as approvals. We’ve got to remember that. Let’s talk about another section of paid as agreed.
Here’s the thing, desperate times require desperate measures, but if you have the wherewithal to keep going and maintain these business relationships, then you go all in. Meaning you can demonstrate to any one of these banks, if you’re continuing to pay and other borrower behaviors are lined up. We need to walk this path intelligently, but you can request further approvals now because you’re not taking advantage. I’ll promise you one thing. If you have a mortgage or a student loan that’s backed and you went through Wells Fargo or Bank of America to get one, you’re not going to get any more credit limit increases if you forego payments on your mortgage or on your auto loan or whatever else.
They’re not going to give you more money now and it’s going to be more difficult to get it later. If you are diligently moving through these steps and these borrower behaviors are worth 5X to 10X, you can ask for credit limit increases because you’ve been running the fundability behaviors and you look like that bullseye borrower. You’re right smack dab in the middle of this funding bullseye. It’s time to go all in. I’ll give you a perfect example. One of the things that we did is business as usual at Get Fundable. My organizations, we have several that are contributors to this whole fundability movement, education, fulfillment. Wells Fargo, I cut $37,000 check from one of my business credit lines to invest in another one of our expansion things because I’m going all in. Wells Fargo didn’t have a single problem with making that transfer. Why? Because we have demonstrated in every way that now and before our behavior is count honorable.
I have a conversation with Wells Fargo, “I wanted to do this. Is that okay with you?” Exactly what I’ve talked about in the bootcamp. You haven’t been to bootcamp. You got to go especially during these crazy times. You got to find out how to talk to your bankers, how to build that relationship with the banker so you’re being approved right now. That’s the third. There was consolidation. There are a forbearance and deferment, those things. If you’re doing it well, if you’re doing it right, you can ask for more money, credit line increases and be able to create the right circumstances so that you can leverage this.
I’m going to say this because I’m saying it every single time. As a cautionary tale, do not make your minimum payments. Make something a little bit more than a minimum payment because you do not want to send the message that you can only afford a minimum payment. That’s on a revolving. You can continue to make your regularly scheduled payments on your installment loans, mortgages, auto loans, student loans. If you’re going to keep that going wherever you can, if it is not detrimental or harmful to the cash to take care of your family and your loved ones, then take care of your personal fundability, the greatest asset that you have in your financial world.
Thank you for joining me. I love bringing these insights to you. Leave comments where you can so that we know how we can serve you more. What are the questions you need? Thank you for sharing a question that we can dial in and drill down deeper and deeper. Paid as agreed, it is a thing. Protect your relationship with your lenders and they will lend to you now and in the future. You be well and have a spectacular day.
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