The following is a post sponsored by National Techmark:
In a twist that no clever banker could have predicted, consumers who are in financial distress are opting to unload their homes before their credit cards. In the past, consumers had always opted to pay their mortgages first, in an effort to save the home as a primary asset. However, with falling prices and many homeowners underwater on their mortgages, the notion that a home is an asset has been challenged to the point where many are walking away from it, recognizing it as a liability. With tighter lending restrictions, many are opting to hold on to what little credit they already have as long as they can, above all else.
Living On Credit
Unfortunately, with high job losses or reduced hours, people are very uncertain about the future. While they might be able to find a place to stay, if they lose their home, it’s unlikely they can do so with a bad credit history. It’s not just the idea that you can buy groceries on credit either that might be impacting this decision. After all, there are ways to obtain a loan with bad credit using payday loans or borrowing from friends and family. The decision to safeguard the credit score above all else may also include the understanding that credit reports are pulled for other things besides loans.
When Your Credit Matters
Credit reports are pulled when making a rental application or buying a car. Without a place to live or transportation, many people would find it difficult to remain employed. In addition, many prospective employers are also choosing to pull the credit reports to determine whether a future hire might have outstanding debts that would tempt them into embezzling at a cash sensitive establishment, like a bank. If the credit report comes back negative, it can be a valid reason for declining to hire a candidate. With credit reports being used for far more than they were originally intended, the average consumer realizes that keeping a good credit history is important to their future success in life.
What They May Not Know
While all of this is important to consider, what the average consumer has forgotten is that many states allow deficiency judgments for property that sells for less than the note on it. That means that walking away from a home doesn’t totally resolve the debt through foreclosure and these monies can be sought in court causing problems for many years to come, damaging your credit also. Defaulting on a credit card, while expensive and ruins your credit, is not secured by an asset and can be settled for a far
smaller amount than the face value. This not only saves the home, in some cases, but also eventually allows you to rebuild your credit.