The other day I was looking at a potential property and I thought to my self that if I wanted to buy it I would have to pick up my credit score a bit. Most of us know what that's like. We pile up debt fixing places or making payments between renters, etc. So, I've got a couple of credit cards that have a lot charged on them. I figured, if I can pay these cards off with a home equity line or a simple cash-out refi, that would help me out enough to qualify me for the kind of loan I would prefer on this new place.
When I talked to a representative at my bank about getting a personal loan or a heloc (instead of refinancing), I was surprised to hear that if you get a loan for the purpose of debt consolidation, the bank will require that you allow THEM to contact your creditors and close those accounts.
I'm not sure if you all know this, but if you've had an account for over 2 years and you're using less than 40% of the available balance, then it's helping your score. So, for them to insist on closing the account meant, in my situation, that any help that the consolidation would provide would be nullified by the fact that they were going to close out my credit card accounts. How does that help me? Heck, how does that help anyone.
I understand that the point is to cripple my ability to create more debt. But anyone who really wants to be a crazy consumer spender can just go out and open new credit card accounts. And, if you're not a crazy consumer spender then you should be responsible enough to handle having all that potential debt. Right?
So, then, I ask you; What is the point of such policies?
It seems like (for most of us) in order to invest you need to borrow money. But in order to borrow money, you can't have debt. But the thing that makes us money is, essentially, the buying and selling of debt. Call me naive, but I thought that banks could tell the difference between a real estate investor who has a plan and is making good on payments so far, and someone who's defaulted on payments for the new hot tub from Spa Depot and the flatscreen that they charged to a Visa at Best Buy. We all know that really big, national banks can't do much to change policy, but the little ones, they should know better.
Oh well. Smile big and say thank you. That's my motto. They lost the interest on the loan and I'll just refi to get my debt consolidated.
We'll all live.