Got Credit?

The not-so-dirty little secret in the aftermath of the economic recession is that there are plenty of people with great credit scores that entitle them to - among other things - refinance their home mortgages at historically low rates, get more favorable rates on auto loans and on credit cards.

Sounds great, doesn't it?

It might not be so great if there is another tsunami of layoffs among those who currently have platinum credit scores and take advantage of all of the offers that are circulating. I have received no fewer than 5 solicitations each week to get all sorts of credit cards, cheap home equity loans, etc. I have shredded all of them, not because they aren't great deals, but because few folks realize that 1) each time you apply for new credit, there is a risk that your credit score will go down and 2) the temptation to use that credit when you get into trouble because of a layoff or a lower or non-existent bonus that you might have counted on.

You will undoubtedly get advice from far more sophisticated people than me and I make no claim to holding a degree in home economics, but I would take $20 to your local office supply store and buy a shredder so you can keep your available credit lines within your means to pay it and avoid identity theft in the process.

My very unscientific survey of friends I know at all points on the economic scale and observations of the traffic at local NYC retailers have convinced me that we're in the middle of this crisis, not the end, and that cash is king. I prefer to leave big borrowing to the companies that actually hire people. My purchase of a pendant light at Restoration Hardware won't save a job. You might argue that a million people doing the same thing will save jobs but I'm not so sure, particularly in an environment where companies with otherwise great fundamentals have weak stock prices because of a general panic about their future.

I know, as you do, that consumer spending is vital to keeping the U.S. economy stable. Perhaps the middle ground is to borrow modestly in order to add value (or retain value) to what you already have, provided you can pay it off in a couple of months, not years. (I'll hazard a guess that reupholsterers, house painters, furniture refinishers, electricians, landscapers, auto detailers and a few other skilled trades will agree with me that small improvements that are relatively inexpensive are much less likely to get borrowers into trouble.)

If you are lucky enough to earn enough money to meet your basic obligations without new injections of credit, maybe we could all wait until we actually need something to apply for it. That need might well turn out to be borrowing for education to get the skills to take jobs that will likely be created by the stimulus package. If you use it for living room furniture, it might not be there for tuition. If you try to sell your house, no one will care that you bought nicer furniture, anyway.

I'll give you a real life example: My sister is getting married in June of this year and the rehearsal dinner will happen under a huge tent in the back yard. My mother's house is 60 years old, in decent shape, but it hadn't had a full interior paint job in 7 years and she wanted to make her extra bedrooms more hospitable for out-of-town guests by making them into little suites, including painting the bathrooms. She bought old-fashioned, small tube (but new) televisions for $75 a piece (basic cable connections for a one-time installation fee of $40), some paintable consignment furniture and tons of wall paint and fabric. She enlisted me, my aunt and uncle to help make things look crisp and welcoming. For very little money (all payable with cash), you would never know that the house is as old as it is and I am convinced that if she ever wanted to sell the place, she won't regret making it more competitive with new construction.

The other choice would have been a complete overhaul that would have cost at least $20,000. No one would have noticed that the four of us did it ourselves in one marathon week for a very small fraction of the price (and, my aunt falling off a ladder - but she's okay). The bonus for me is that the project bound my family together even more closely that I would have predicted. We tried to use local retailers as much as we could. From an environmental perspective, we re-purposed almost everything in the house. A little imagination and a lot of determination go a long way.

It would be great to think that we could just take a break from the spending orgy for a few months and then go back to normal. I think we'll be better served by redefining what it means to do ambitious things and to redefine what really matters in the long run.

I would love to hear how my friends are doing on this front. It's never easy to shift gears so quickly but I think it's really possible for most middle class people to have a great life and great surroundings without killing themselves over how to pay for it all.

I'm available for painting parties. I only ask that you order thin crust pizza with peppers and onions and, if you can tolerate it, anchovies.