So, you have a great credit rating do ya?

It seems to me that we are much too tied to a rating system that does very little other than encourage us to spend beyond our means. I am talking about the credit scoring system of course.

credit scoreThere are only two reasons you would want a good credit rating.
1. So you can borrow money.
2. So you can pay the least amount (interest) for the money that you borrow.

There are articles all over the internet that talk about “good borrowing”. I’m uncertain any of them have real merit and that maybe a better terms is “necessary borrowing”. Let’s face it, how many of us would have a house if we couldn’t get a mortgage, and a car if we couldn’t get a car loan? The rest of the credit – credit cards, lines of credit, etc. would undoubtedly be bad borrowing. Essentially we are borrowing to pay for expenses we should find a way to plan for. And yes, the cost of living does put a hamper on those plans in many cases. But so does spending beyond our means. And most of us do it. We finance trips, nights out, shopping spree’s or just plain every-day living expenses like gas, groceries, car repairs etc.

It amazes me…no, concerns me, when I have someone in my office in financial trouble that is more concerned about losing their “credit rating” then getting their lives back on track financially. I hear things like, “my credit rating is perfect” or “I have worked hard to get my credit rating back and it is finally getting there”, and then I look at their situation. They are maxed out on all or most of their credit and with a little investigating I find out that they have been juggling the minimum payments for months, or years.

Approved

From a credit rating perspective, your credit rating may look good because you’ve done a good job juggling your payments, not because you are a good credit risk. Want proof? Do you know anyone who got yet another credit card when the ones they had were maxed out (or at least no paid off in full)? If you applied for a new card tomorrow, you would likely get it. When the new credit is approved, you have a false sense of feeling credit worthy, like you are being rewarded. You are not. You have effectively deceived a flawed system with the recipient of the fallout of that deceit being you. And your family. The credit lenders are making money from their investment in you. They are betting that you will make the payments when you max out your card to them, because you are doing it with others. And they are sitting back and raking in the profits when you do so. You, on the other hand, enjoy a temporary relief to your financial stress. One that will end and increase the stress with yet another payment to juggle. If it sounds like I know what I am talking about, I do. Been there, done that, got the very expensive t-shirt (wounds) to show for it.

 

The moral of the story… just because your credit score is ok, and lenders say you “qualify” to borrow more money, doesn’t make it so, Look deeper. Get a financial assessment. Stop the wound before you bleed to death so-to-speak. Trust your instincts and make good financial decisions that positively impact YOUR bottom line, not the lenders, who, in essence, created the system to facilitate lending more money to more people so they could take more of YOUR money.

Happy Finances!

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