A clerk at Home Depot offered us a Home Depot credit card. We told her that we have credit cards we never even use so don’t need another one. She said they made her offer them to everyone, but then told us that it had taken her and her husband five years to climb out of the credit card debt hole they had dug for themselves. That’s the truth and something that would make her a likely candidate for taking on as an employee or tenant.
Many people have dug themselves holes they can only dream of climbing out of. They approach us to hire them or rent to them. We have to decide if the story they tell us about their less-than-stellar credit history is a lie, the truth, or a dream. Obviously the woman at Home Depot was the truth. But how about these?
“I’ve learned my lesson.” “I’m still learning.” “I just need another chance to prove myself.” Dreams or lies? Certainly not demonstrable truth.
The cogent point is that we and our businesses are not there to “help them out” or “give them another chance.” We owe it to our customers and/or tenants to ensure that the people we hire or rent can show us they are at least somewhat responsible financially. So how do we determine the difference between a lie, the truth, and a dream? We’ll look at some ways to sort that out shortly.
The credit situation always affects hiring and renting but maybe more so of late. The biggest issue, of course, is student loan debt. It amounts to $1.34 trillion, more than either credit card or auto loan debt. Credit card debt is “only” $764 billion and auto loan debt “only” $1.17 trillion with millions of people in trouble with one or more kinds of these debts.
Plus, there’s no bankruptcy escape from student loan debt, so those people with student loans who default are more likely to see their wages garnished than are those with other debts. Time magazine reports that someone defaults, goes 270 days past due, on a student loan every 29 seconds, that’s 2,929 people a day, 1,087,448 people a year. Even so, an auto loan in default can mean a car getting repossessed and a credit card debt default can mean bankruptcy or wage garnishment assuming the debtor has filed a bankruptcy in the past seven years and still managed to get another credit card.
None of those options is a plus to an employer or rental owner. Still, the people with suffocating student loans, choking credit card bills, and flesh-eating auto loans need to get jobs and find places to live. Can we believe their stories? They always have one, and some are so practiced and seemingly true that they may convince us. After all, they have been rejected so many times that they have their story down to an art.
The clerk at Home Depot was telling the truth. She had solid evidence of a change in her family’s desire to escape crippling debt. Others not so much.
When, as the final step in the qualification process we pull a credit report and discover that this person has credit that wouldn’t allow him or her to buy a painted rock, we need to hear decide about the entire story ? It may be a good story, and I’m sure you’ve heard most of them. They’ve “learned their lesson.” Have they? What evidence do you have that their lesson is learned? Has that lesson resulted in action to correct their mistakes? It is not up to us to take their word for it; it is up to them to prove it.
How do they prove it? One way is a demonstrated improvement in their credit situation. For example, if they had $50,000 in debt and now they’re down to $40,000, obviously something happened to get their debt load reduced. What was that? Was it something that shows they are doing something positive to bring down their debt? It is up to them to tell us, not up to us to assume that they are getting a clue.
For example, if they had gone to a financial planner, worked out a way to climb out and are actually using the plan, that is the truth. But shouldas and couldas don’t get it. “I should have been more careful, but now I’m going to start paying off my bills” is not a response that encourages confidence. Chances are, they will fall right back down to the bottom of the hole they dug for themselves, pick up the shovel that’s still stuck in the dirt at the bottom just waiting for them, and dig some more. Sure, they’ve “learned their lesson” but learning a lesson and actually putting something into place to correct the errors of their ways are two different things. Still they want you to give them a chance to prove themselves. Prove it first, then come back and talk to me. What they have said is either a lie or a dream.
“What’s your plan for success?” “How’s that working?” “What progress have you shown?” “Convince me I should believe that you are going to get yourself in a better situation.”
We need to worry when a credit report shows crippling debt not just staying the same but increasing. We need to worry when we see current 60-, 90-, and 120-late payments on a credit report. Planning to do something about it doesn’t bring down the bills. Actually doing something may.
When we need to worry less is when we see 60-, 90-, and 120-day late payments over a year old but are current now, when we see debt balances decreasing, when we hear their plan for climbing out that is actually in place and working, when we hear their dream of being debt free is not just a dream but a process in place. Until then, there’s no reason to believe they have learned their lesson or deserve another chance to prove themselves. Let them prove themselves first.
We see applicants who have debt problems and some of them will be excellent candidates for employment or renting, but they are the ones who are in the process of correcting those problems. The people who dream about being out of debt, who know they have a problem but aren’t doing anything about it, who haven’t got a ladder so they can climb out of their debt hole are poor risks. The proof is in a working plan. Make them show the proof.
By Robert L. Cain
