"Maxed Out" movie maker tells the truth about credit and collections.

This video is a recording of a question-and-answer segment by James Spurlock at a Google seminar. He is the film maker who made "Maxed Out" and explains here the background behind the movie and answers questions about credit, debt, and collections (No he did NOT go into debt to make the movie, despite some rumors floating around on the Internet.):



Here are some points he makes during the session:

The most surprising thing?

1.) Income has nothing to do with the credit issuer's decision whether to issue credit or not. It's ALL in the FICO score for the lending decision. All the income information is used for? For collections purposes if one defaults (read: deciding whether the creditor should sue or sell the debt). In other words, the days of the friendly banker/credit issuer who would lend one money, as the old saw goes, if one could prove one dies not need it, is over.

[A note from DT: Even when "manual" processing is involved, it's the credit score that is the #1 item the credit issuer looks at. The advantage of manual processing is that it gives the consumer a chance to explain why the situation is as it is and might help convince a credit grantor to issue a credit line/credit anyway.]

2.) Assigning blame for the debt mess? More than enough for both sides, but the fact is that consumers make decisions thinking the creditor will not rip them off...not so. In fact , creditors love people who may well not be able to pay: "Front-loading" (Definition here also here) and punitive fees pay the loan back early and the rest is "gravy" they are loathe to lose. Even if there is a default, and they are not yet paid back?
Tax law and debt sales make up for the majority of the loss.

3.) The fear that the drying up of "easy credit" will result in economic "meltdown"? Not that simple; it's a political thing that is more fear-mongering than a real possibility.

4.) Best advice to reliably stay out of hopeless debt?

a.) Don't...have children, get ill, etc.

b.) Do not count on being able to pay it back because life can...go from "Awesome!" to "Aw s*it!" very quickly and there may be no way to control that or to be able to put enough away to clear out the mess if things do "go south". The "be frugal and you can pay them back" mantra is...a bunch of sh*t for most people.

Why do you think we hear about the "frugal" ones who paid it back once they got into credit trouble for whatever reason? It's the (relatively) rare situation that is "newsworthy", not the usual for the rest of the "maxed-out" population.