Then Dave walked into a Bank of America branch to make a simple deposit that would change his life. In years past, a bank teller would have just processed the transaction, handed Dave his deposit slip, and said, “Have a nice day.” But now tellers are trained to cross-sell their bank’s menu of financial products, and in this case the offer of the day was a credit card. The teller asked Dave if he would like to apply for a new credit card with the bank, and he said, “No thanks, I’ve got too many credit cards already.” The teller went into hard-sell mode and told Dave he would be wise to get rid of his existing credit cards and go with the bank’s product. Payments would be easier, money would be saved—he was very convincing. In Dave’s mind, since the offer was being made by a respectable, well-dressed employee at a prestigious bank, it felt more like a hot tip from a financial professional than a sales pitch. Dave followed the advice, closed his credit cards—and promptly dropped his credit rating from a stellar 797 to a not-so-wonderful 627. As a result, Dave failed to qualify for a home loan.

One minute he was a shoo-in for a loan that would enable him to buy the home of his dreams, and the next he was plunged into the nightmare of bad credit. He and his wife were devastated. A routine trip to the bank had shattered all their hopes for a better life. The house they had fallen in love with the moment they saw it—gone. The wonderful school district they had carefully picked out for their kids—gone. Instead of entering an exciting new chapter in their lives, Dave and his family were back to square one. How could this have happened?

The bank teller wasn’t deliberately looking to sabotage Dave’s credit. He was only trying to supplement his $24,000-a-year salary with additional commission. The odds are, he had no clue that closing credit cards was a terrible idea. There’s no way the bank told him to advise clients to close their credit cards, so where did he get the fatal misinformation? I would be willing to bet the original source was one of the so-called financial experts on television, who are constantly yelling, “Close your accounts! Cut up your credit cards!” They make their living offering tips on the stock market and a host of other financial subjects, and for years, millions of Americans have been heeding their advice as if it were gospel. And yet, even though most of these experts lacked the foresight to predict the mortgage disaster that has plunged us into a crippling recession, they are still on the air, and huge audiences are still hanging on their every word. It’s like a doctor failing to diagnose an obvious medical problem until it is too late to treat the patient—the difference is that a doctor is subject to a malpractice claim that might ruin him or her, whereas the financial expert can simply shrug and deflect any criticism with lame excuses like, “Hey, we were all fooled,” or, “No risk, no reward.”

The problem is that most of us assume a financial expert wouldn’t be offering their advice unless it was sound. But nothing could be further from the truth. A celebrity financial guru on a cable program might have a personal stake in recommending certain types of investments or might just be wrong too often to help the investors who rely on his or her opinions. Either way, the average American is not getting rich from following their advice, and many have been hurt by it. As an alternative to relying on unreliable stock tips, I want people to make informed decisions, understand the rules of the game, and become more self-reliant when it comes to improving their financial strength. And that’s precisely the goal of this book.

In other words, the loan officer had pulled a bait and switch on Caroline, and now he was lying low. Caroline was beside herself with anger and frustration. We couldn’t postpone the move,” she went on, “and the trucks were costing us $3,500 a day. We were stuck—and that’s how we ended up with a two-year adjustable loan.” Think about that for a second. She’s a lawyer, trained to never sign a document unless everything is perfect, but she picked the wrong mortgage broker and ended up being saddled with the wrong loan with the worst possible terms even though she qualified for the best terms available. Worse than that, property values fluctuate all the time, and if Caroline’s went down, she might have lost the opportunity to refinance. No refinancing option means higher mortgage rates and higher payments, and suddenly Caroline’s carefully calculated budget would be shot to pieces.

The only way to protect yourself against this happening is by getting everything in writing; set the terms, and walk away as soon as those terms are changed. In the long run, you’re better off delaying the closing to get the financing you deserve or just walking away. A mortgage loan is a long-term commitment, and your best bet is to ensure you’re using the right, trustworthy, and experienced lender up front to prevent ending up in Caroline’s predicament.

The resulting snowball effect could have led to Caroline and her husband struggling to keep up with payments, and even going into default—a complete disaster. It was not Caroline’s fault—she thought the loan officer had been “very nice,” and she assumed she would get the loan she had bargained for and to which she was entitled. But her predicament demonstrates why every decision you make in your financial life is very important and can lead to long-term consequences. Just being intelligent and experienced isn’t enough anymore. You need to become financially street smart, and that’s where I come in.

Closing your accounts and cutting up your credit cards may seem like sensible advice to someone trying to get a handle on their debt, especially when it’s coming from people who look and sound like experts. But the consequences of following bad financial advice can be catastrophic. The only way to avoid this all-too-common hazard is to arm yourself with the relevant facts about your credit and finances, and by the end of this book, you will be armed to the teeth—that’s my mission.

The first step in the process is scaring you into a little healthy skepticism about the credentials and motives of anyone offering any kind of financial advice. For example, right now you should be asking yourself what qualifies Rodney Anderson to save anyone’s financial life. After all, I am a mortgage lender, a job description that’s become almost a dirty word lately. Well, I didn’t start out in the mortgage business. My first job out of high school was working as a teller in a bank, and I was just as clueless and inexperienced as the teller who convinced Dave to destroy his credit. I was also married at 21 and a father of two by the time I was 23, and looking to buy a home. Our credit was shaky, but just good enough to secure a loan—the wrong loan. It was adjustable, and it kept adjusting itself upward. We couldn’t refinance because our house just didn’t have the value, but eventually I met the right lender who put us in the right loan. That was a revelation. Eventually, I became a loan officer, trying to make enough in salary and commissions to survive while paying off $60,000 in credit card debt.

Then my wife and I got divorced. It was a very difficult time, but it was also a learning experience—not just emotionally, but financially. In fact, I have devoted an entire chapter to the financial repercussions of divorce because so many people are going through it and yet so few of them understand how to protect their credit interests.

By the time I got into the mortgage-lending business, I had personally been through most of the issues covered in this book. Being able to relate to these credit difficulties and financial challenges definitely helped sensitize me to the circumstances faced by mortgage applicants every day. But in my first lending job, I was also blessed with an amazing mentor who never let me forget that mortgage lending is an opportunity to help others, and that your clients’ needs should always be your top priority.

As a lender, I’ve been examining the financial backgrounds of loan applicants for nearly two decades, and in doing so, have learned literally everything there is to know about the world of credit. Before that, while working for years down in the trenches of the banking industry, I had a ringside seat for most of the important economic developments of the past 25 years. I witnessed the S&L scandals unfolding back in the late ’80s and early ’90s. I saw the banking industry gradually shift from promoting savings products to pushing credit products. I watched helplessly as the mortgage bubble grew rapidly on a foundation of bad debt and then exploded in the face of the American public—I saw it coming but could only stand by and await the inevitable. I watched as lenders began cooking up loan products that were destined to fail. I saw the tactics of greed in my industry evolve to the point where hardly any lenders had the integrity and common sense to say “No” to a loan applicant, regardless of credit or earning capacity.

That’s the thing that really struck me: Suddenly, the answer was never “No.” I want to help people realize their dream of home ownership, but if I said “Yes” to everyone who came through my door, pretty soon I’d be responsible for a lot of foreclosures, bankruptcies, stress, divorce, and all around misery. My company turns away loan applicants by the bushel. We will not sell a loan that isn’t a good fit for the client—period. If an applicant’s credit isn’t good enough, that’s that. I don’t say, “No,” but I do say, “Not yet,” and I give them the tools to improve their credit so they can try again.

The success of my company reflects the truth of the old saying that honesty is the best policy. Repeat customers and referral business are the foundation of my company. After all these years, I’m still putting my clients first, and it works.

There is definitely some truth to this perspective, but it’s a superficial truth that misses the larger reality beneath the surface. It’s true that many Americans spend more than they earn. Millions have taken high-interest mortgages that busted their budgets. Millions more routinely charge purchases that load their credit card accounts with debt.

But the credit crisis isn’t just an issue of personal responsibility. That’s part of the problem—and I address that issue in my seminars—but it’s not the whole story. Let’s face it: Millions of American wage earners live paycheck to paycheck. A huge percentage of these folks use credit cards just to fill the gaps. Maybe their kids need some clothes. Maybe their car’s transmission has given out. Maybe their roof has started to leak. Maybe someone in the family has gotten sick and racked up medical bills that insurance doesn’t cover. These aren’t uncommon scenarios. While it’s true that many people try to “keep up with the Joneses,” it’s also true that most are simply trying to keep their heads above water. To complicate matters, many credit card companies charge interest rates that defy almost anyone’s ability to keep up. Is it any wonder that Americans feel as if they’re drowning in debt? Tell me honestly: if you call people irresponsible as they drown, is that going to save them?

Most people agree that we’re currently facing the most dangerous financial crisis since the Great Depression. They’re right—it’s the credit equivalent of an 8.5 magnitude earthquake. The credit situation in this country is already a disaster for many Americans; a major threat to others; and a long-term problem for almost everyone. The subprime mortgage debacle was the initial tremor, but the numerous aftershocks are doing most of the damage. Lenders have drastically tightened their guidelines, meaning millions of responsible, hard-working people can no longer qualify for loans. Millions more are suffering foreclosure, bankruptcy, or both, while those fortunate enough to acquire loans are paying much higher rates than before.

Meanwhile, countless credit cards are maxed out, and defaults are through the roof, causing severe and widespread credit damage across the country. Even people with excellent credit have cause to worry as we move forward into an uncertain economic future. The only thing that’s certain is that maintaining good credit is more essential than ever to our financial survival.

I could go on. If these statistics prove anything, it’s that Americans need better financial advice than they’ve been getting. So much for the “experts.”

The truth is, until now we have trusted too many so-called experts motivated more by their own pocketbooks than by ours, and this misplaced trust can really hurt us. I call it subprime advice because I think the best example of what can go wrong when we follow bad advice is the collapse of the subprime mortgage market. There are basically two kinds of subprime advice: professional subprime advice and brother-in-law subprime advice. Professional subprime advice is the kind of advice we get from people who are motivated by some factor other than our own best financial interests—like the advice offered to Dave by the bank teller. Then there is the brother-in-law variety, which is the kind of advice we get from friends and family who might mean well but don’t really know what they are talking about. Don’t let the fact that the person offering this kind of advice has been through what you are going through—remember, just because your brother-in-law survived an appendectomy doesn’t mean he’s qualified to perform one on you.

Another category of bad financial advice goes beyond the realm of “subprime.” It’s what I call “predatory” advice. As the name suggests, this is the kind of financial advice forced upon us by ruthless types trying to exploit our financial ignorance or desperation in an attempt to make a quick buck at our expense—think Bernie Madoff. But he’s just the tip of the iceberg. I had one elderly client recently who was retired and relied on his investments for income, who told me his broker had his entire portfolio invested in stocks. I told him he should switch brokers, and he was reluctant. He’d been using this same broker for a long time. He trusted him, and he thought he was a “nice guy.” I said, “Well, Ed, either switch brokers or cash in your portfolio and go play roulette in Vegas with the money—you’ll get the same odds.” That broker recommending all stocks to an income investor was Predatory Advice 101. He was gambling all of Ed’s money on high-risk investments because he stood to make higher commissions. Some of these brokers also encourage investors to borrow on “margin,” which is essentially borrowing against the value of your investment portfolio.

To avoid this problem, work only with a financial adviser who charges a flat fee but does not earn commission for the advice they give you. If any of your money goes into stocks or mutual funds, you can execute those orders on your own, using an online discount broker. A financial adviser who does not earn commissions is much more likely to give you advice aimed at protecting and improving your situation.

An example of financial risk you face daily is a predatory lender who takes a client who can afford a $120,000 home and convinces him to buy the $400,000 mansion instead. The reason is simple: the higher the loan, the higher the lender’s commission. Never mind that the borrower can’t afford the loan—the lender gets his big commission and moves on to the next victim.

Dan got his modification, all right, but as a consequence of getting a month behind on his mortgage, his credit score dropped 200 points. This bumped his credit card interest rate up from 7.0 percent to 34.9 percent—and wiped out the money he saved on his mortgage modification. Not only is that a prime example of subprime advice, but it also underscores the importance of your credit score and how one innocent mistake can drive it into the ground, no matter how spotless your record was before the mistake.

Like it or not, your credit is your financial identity in the eyes of the world. Is it fair to be held accountable for years because of one innocent mistake? No, but that’s the way it works. Most people know they have a credit score, but don’t understand how it works. They think it’s just sitting there, and every now and then it gets adjusted when some major financial swing occurs in their lives. Wrong. Credit scores go up and down constantly, and there’s a very long list of ways to impact your credit. The good news is that by the time you finish this book, you’re going to know everything you need to know about achieving your maximum credit rating and keeping it that way.

It all starts with avoiding bad advice and misinformation that leads to mistakes that hurt you. I get calls on my radio show every week from people who have heard wrong information repeated so many times that it takes a lot of effort to set them straight. I remember one caller who was convinced that debit cards and secured credit cards are the same thing. They’re not the same at all, but the caller had heard otherwise enough times to tell me I was wrong. Another recent myth is the idea that debit cards are foolproof, indispensable, and the only way to spend money without risk. This myth originated—surprise—with the banks that issue the debit cards.

You should use your debit card for every purchase, said the banks. Why? They claim they wanted to protect you from credit card overuse and the dangers of carrying around cash, but the real reason was to compel you to overuse your debit card and incur overdraft fees. With everyone running around using debit cards, the banks could count on a huge profit from overdraft charges. Before someone finally raised the alarm and put pressure on the bank to curb stealth overdraft practices, the banking industry reaped billions of dollars a year.

The infallibility of the debit card is a myth, but it’s also just another form of subprime advice, and by accepting the sales propaganda of the credit and banking industries, you’re giving someone license to steal your money. You should always assume the worst when it comes to financial products that sound too good to be true. By the time the alarm was raised over stealth overdraft practices, the banks had already pocketed billions. But don’t worry, they’ll think of something else to replace it. You can protect yourself by being prepared for whatever comes along.

Sometimes, it isn’t bad advice that is ripping us off—it’s silence. For instance, Eric came into my office to apply for a loan, and as I was looking over his financials, I noticed that he was overpaying for homeowner’s insurance. Most people haven’t got a clue if their rate is too high, but I’m in the mortgage business, so I can spot an inflated rate a mile away. I asked Eric when he had last spoken to his insurance agent. He couldn’t’ remember. Then I asked Eric if his agent ever called him. He said no, he had never called. I referred Eric to another agent to get a better rate. Eric called the other agent, and presto, his premium dropped from $2,200 to $1,133 per year. But the kicker is that the lower rate actually originated from the same insurance company he’d already been using. He realized he had wasted thousands of dollars over the past several years that could have paid for his child’s college tuition.

Insurance agents are not in any hurry to call you and give you a lower rate, so they play possum and hope you never call them. That’s silent subprime advice—unless you ask, they won’t tell. That goes for all types of insurance, and many people have at least three different insurance policies, so if they don’t pick up the phone and call about the rates for all of them, that’s giving someone a license to steal your money, times three.

This book gives you the secrets and strategies you need to save your financial life. Our lives are governed by credit because we live in a credit economy. Your credit and your credit scores are huge factors in your life from the age of twenty-one until the day you die. If you ignore this reality, you’re sunk. As you can see, there are lots of ways you can damage your credit without even knowing, and believe me, I’ve only scratched the surface. I encourage you to become credit conscious and to become smarter in your financial life. After you read this book, you’ll have the ability to recognize missteps before they happen.

Erase all of that subprime advice from your mind and replace it with information and strategies that will help you thrive in the credit world. It’s more than just spotting subprime advice. It’s more than just becoming credit savvy. It involves changing your approach to the way you spend your money and make financial decisions. This book explains the various sources of credit problems, identifies those problems that affect you the most, and offers solutions that help stabilize and rebuild your credit. So far I’ve given you a few examples of how important your credit score is and some of the many ways it can make or break us. The rest of the book goes into more detail about the credit challenges, shows you how to fix what’s broken, and gives you the tools to control your own credit destiny. Below are chapter summaries dealing with all the major and minor credit issues you need to know about:

Too many people have become credit statistics. They didn’t have to be, and you can avoid it entirely. Even if you have great credit or believe that you understand the credit system well enough, there is information throughout this book that allows you to keep what you have and reach higher financial goals than you ever thought possible. All you need are the resources, the insights, and the solutions to the problems that get in the way, and this book empowers you to take control of your financial life.