WHAT IF THE GODS TAKE AWAY YOUR CREDIT?
If you want to be able to make that credit card-financed movie in the months ahead, read this article.
BY ESTHER B. ROBINSON
Over the last decade the credit card has starred in most of the creation myths of our industry. The gods of credit came down and handed us tablets of plastic and lo and beholda film was born. Sure, hard work and years of sweat and swear words played a part too, but that mighty card made it possible to pull art out of thin air. And it was like magic — when you needed credit, it appeared. A lot of films got made, but so did a lot of debt.
In fact most Americans are swimming in debt. And recently, we’ve gone from swimming to swamped. Too many folks have too much debt. And with many banks on the verge of collapse and our country reeling from the risk posed by rampant credit use, credit will soon be a lot harder to get. Why does this matter to filmmakers? Because your access to credit maybe dramatically curtailed in the coming year, EVEN if you have good credit. And realistically without credit, your film might not get made. Think about it: When was the last time you used a credit card? If you are like most people it was probably pretty recently. Credit as a constant source of financing has become so ubiquitous we barely even think about the individual transactions. For my first film, A Walk Into the Sea: Danny Williams and the Warhol Factory, much of the production was made possible by credit. Albeit I was conservative (never taking on more than 10k in debt, keeping balance to available credit ratios low, using zero percent cards, paying off the amounts regularly), the cards were still a godsend, allowing me to fly to interviews and take calculated risks against future infusions of cash. But what if that disappeared?
Here is the kicker: “About 45 percent of U.S. banks reduced credit limits for new or existing credit card customers in the fourth quarter of 2008, according to a Federal Reserve January survey of senior loan officers.
And according to a Nov. 30 report by Meredith Whitney, a former Oppenheimer analyst, financial institutions may slash $2 trillion in credit card lines in the next 18 months.” (Bloomberg news March 22, 2009)
This means your credit card limits are likelyto be lowered and your ability to get new linesof credit may be compromised. Because of this,you will soon find your credit score matters morethan it ever has before. Knowing your credit score(and repairing it if it’s damaged) may be the keyto your ability to make films in the future.
So, when was the last time you checked your personal credit score?
If you’re like most people, possibly never.All this information about credit can seem boring and time consuming. Hell, we’ve got movies to make. Nobody wants to slog through these details, but also, many of us have probably damaged our credit, so we’re actually afraid to look. In fact, even though I was pretty careful with my debt on A Walk Into the Sea, I was plagued with worry and scared to learn what my credit score had become. I know this worry is common, and so is the “don’t look” response. Giving classes through my organization ArtHome, which helps artists build assets and equity through financial literacy and home-ownership, I see this response again and again, and it’s clear that just getting started is the hardest part.Ironically, once I got my new score it turned out to be basically okay, but there were mistakes on it that once corrected made a big difference. This energized me to get out and remind folks to check and correct. And now with the credit crisis, it’s actually urgent. Wemust look because our ability to make future work might be compromised if we don’t.
So in an effort to arm all filmmakers with the knowledge of how to get their credit score ashigh as it can be, this article is built to give youthe basics: To teach you to understand what thecredit score is, to show you how your credit scoreis compiled and to give you 10 ways to repair it.Online we’ll also give you the links mentionedand other resources. Next issue we’ll focus on getting your debt in order (yes folks, we know you’re out there!) and in future articles we’ll talk about things like great second jobs and how to turnyour new financial savvy into savings and homes(there is a positive reward to all this, we promise!).
Demystifying Credit Scores
At it’s most basic, a credit score tries to condense a borrower’s credit history into one number. This number is derived by using scoring models and mathematical tables that assign points to different pieces of information. This information is chosen because it is thought to best predict future credit performance. Basically the folks lending you money want to know that you are a goodrisk — that if they lend you money, you will pay it back. Developing these models involves studying how thousands, even millions, of people have used credit. Credit score models can be developed from different sources of data. For example, credit bureau models are developed from information in consumer credit bureau reports. Credit bureau scores are often called “FICO scores.”
How Can I Improve My FICO Credit Score?
There is no quick fix for credit repair, but by understanding what goes into the calculation of your credit score (see sidebar) you can develop your own plan for improving your score. Here are some ways to improve your score:
- Order a copy of your credit report. This is the first step. You are legally entitled toone free report a year. You can go to annualcreditreport.com and order your free credit report or you can go to myfico.com and experian.com to order reports for a charge.
- Review it carefully and correct any significant errors. Changing a mistake on your report (like a mislabeled late payment) can take 30 days to 4 months or longer. I think this step is best done with friends over two meetings. Truthfully the report can be a bit daunting, so if you’re with your friends you can have a good laugh at how much it sucks, have some good snacks and plow through finding mistakes. Then meet the following week to write the letters and send the letters off.
- Pay your bills on time. Besides always being a good rule of thumb, this is crucial right now. A recent missed payment is more likely to lower your score than an isolated late payment from way back. This is also where auto-pay can be your friend; if you are traveling a lot (the festival circuit can really mess you up) orare prone to forgetting, set up auto-pay for the minimum balance. Scared of auto-pay? Then set a date every month that is credit day and really stick to paying your bills on that date.
- Don’t open a lot of new accounts over a short time period, especially if you have a short credit history. When you open new credit the banks think you’re about to go on a spending binge, so avoid sending that signal. But if you have a questionable credit history see #5.
- If you have a questionable credit history, open a few new credit accounts, use them responsibly, and pay them off on time. This feels a bit scary given that you’re also being told in #4 to not open new lines, BUT remember that payment history is 35 percent of your score, so if you’ve hurt your credit, establishing a good payment history is key to getting your credit score back together.
- Don’t open credit accounts you don’t intend to use. Banks want to see you using the credit you have available and using it wisely. In a perverse logic, not using available credit doesn’t raise your score. They want to see you spend it then pay it back over time (see #7).
- Use the credit cards you have responsibly and as frequently as is prudent. One of the other perverse things of the moment is that if you don’t use your cards the banks will sometimes close them or lower the limit. So it is important for them to stay active (but this is not a license togo wild!) because having your limits changed can alter your score. So use for small purchases and pay during the grace period so no interest is accrued.
- Keep your overall balance low in relation to your available credit. If your credit limit is $10,000 and if you keep your balance below $2,500 (25 percent) it will improve your score.
- Pay off your credit card debt rather than moving it to lower rate cards. You want to avoid drastically changing the ratio of your overall balances to your overall available credit, for example: If you owe a total of $2,000on four credit cards, each of which has a $2,000 limit, your total limit is $8,000, of which yourbalance ($2,000) is 25 percent. If you transfer all your balances to two cards and cancel the other two, your total credit limit is reduced to$4,000 and your $2,000 balance now accounts for 50 percent of the limit.
- If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won’t improve your credit score immediately, but if you can begin to manage your credit and payon time, your score will get better over time.
How Long Will It Take to ImproveMy FICO Credit Score?
Negative items affect your credit score much more quickly than positive items. Late payments can negatively affect your score in just a few months, whereas paying bills on time may take 6 to 12 months to generate a significant improvement in your score. BUT it’s important to remember that starting right now gets you closer, starting right now. And the main thing is to do this slowly and methodically, and if you can, do it with others so you don’t lose your mind and give up. Take each step, check in with your friends to monitor progress and you’ll see real results that matter.
Not only will you be in a better position in terms of access to credit, but you will be eligible for more favorable rates on the credit you are offered. Also since credit scores can be used by banks, landlords and prospective employers it could mean the difference between landing that sweet house, apartment or job, or having to settle for something less great. And most importantly, it will help you make sure you’re not only able to make this movie but all the masterpieces that come next.
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