The Bad Credit Cycle

UnknownRochelle’s car is again the problem and there is no easy solution this time. The car can’t pass the state emission’s test; it seems to be because of a major problem with the engine. Her car has well over 100,000 miles on it, has had the emissions problem for most of the past year, and will be too expensive to fix. A repair shop said they could give her a current inspection sticker good for one year if she just gets her horn fixed. It doesn’t work either. This is a short-term solution, but it won’t fix the long-term problem.

Rochelle pays $535 per month for the car and insurance. She has an extremely poor credit score and is being charged a 20% interest rate on the car. To make matters worse, she still owes over $5,000 on it. Her first thought was to let it get re-possessed. Instead she has decided to keep making payments on the car and to go ahead with the repair shop’s suggestion. Bad credit has made Rochelle unable to buy a car from a regular dealer with a much lower interest rate. She is unable to borrow money at a reasonable rate from anywhere and currently also owes a total of $500/month to five different finance companies. When she needs more money she re-finances one of her loans with the current places she owes money to. She is locked into a vicious cycle. The poor do indeed pay a lot more for things.

Rochelle comes over for one of her last two interviews tomorrow morning. Her job is going well; she has been promoted into the position she has been training for the last few months. Her managers like her and she seems now to have a more sophisticated understanding of her job and how to do it. She is also taking classes given by the grocery store to prepare employees for further advancement in the company. That is the good news, but how to get ahead in the midst of all her problems is a huge challenge. Rochelle would have a lot more money if she had good credit. Fixing bad credit has no easy solution. It takes paying your bills on time over multiple years. She hasn’t done that in the past, and recently missed two car payments. Her friends tell her that she can just pay some money to a person who “fixes” credit. It isn’t true, of course, and so far she hasn’t been seduced by that scam. The US is full of people with bad credit, and a good number of them come from the middle class. But many more, like Rochelle, come from the underclass. For them, mistakes made early in life, when they had little understanding of the world, few positive role models, no or bad advice, and a complete absence of any family safety net, continue to dog them as they get older and form families of their own, no matter how hard they work to leave their past behind them.

 

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