Credit Scores
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Whether we like it or not, our lives are greatly impacted
by our financial credit scores. If you have a good credit rating, lending
institutions are more than happy to loan you the money to buy a house, a boat, a
car, help you start a business venture, or whatever. If you have a bad rating,
you're basically stuck in Nowheresville.
For our younger readers, your credit score begins the day you get a revolving
line of credit, such as a credit card or gasoline card, or purchase something on
time, such as a house, furniture, or whatever. Your ability to pay off debt is
monitored and scored from this point to the day you finally die (and pass your
financial troubles to your heirs). In other words, it is an albatross hanging
around all of our necks.
Interestingly, most consumers pay little attention to their credit scores which
are ultimately maintained by three major credit bureaus: Experian, TransUnion,
and Equifax. A lot of people seem to prefer operating in the dark. I guess
ignorance is bliss. To the rest of us, it's a wise move to periodically look
over your credit report and make sure it is an accurate accounting of your
credit history. If it is wrong, it could do considerable damage to your
reputation from a financial perspective.
Your credit score is primarily a reflection of with your ability to pay your
debt. Period. Remarkably, your income is of little concern in this regards.
Just because you make a lot of money, it doesn't necessarily mean you will use
it to pay off your debt. Instead, they carefully monitor your credit cards and
loans. In particular, they analyze the amount of credit available to you, your
outstanding balance, and if you are paying it off on time. Late payments are
flagged accordingly. From this, they calculate a credit score which lending
institutions use to pass judgment on you. Having a good credit score,
therefore, is a sign you are able to manage your finances responsibly. It
should be noted that gender, race, and religion are not considered when
determining scores.
Although the credit report is available free to you once a year, the credit
score must be purchased separately for a modest fee. Perhaps the best place to
begin to study your credit profile is at the web site, Annual Credit Report, a
free service to guide you through requesting a credit check. See:
https://www.annualcreditreport.com/
We all understand what is necessary to raise credit scores; in a nutshell, don't
bite off more than you can chew, and pay it off on time. However, knowing this
and having the discipline to implement it are two different things, as evidenced
by our current recession which was started, in large part, by people defaulting
on home loans (and don't get me started on the idiots who loaned them the money
in the first place).
At the time of this writing, the Experian credit bureau reported that America's
"National Score Index" was 692 which, by my estimate, is a "Good" credit rating
("B"). This is either an overly generous estimate or perhaps Experian is
telling us our economy is not as bad as we thought and is indicative of a
healthy rebound. I suspect the latter as their numbers are based on fact, not
speculation.
If anything, this recession has taught us the virtue of paying attention to
credit ratings, both for the consumer and for lending institutions. Like
it or not, it is how we quantify an individual's financial responsibility.
Regardless of your credit score though, always remember this: The less
money you have, the less likely you will get a loan. Conversely, if you
already have a lot of money, you'll get all the cash and credit you want. Sorry,
that's just the way it is. I don't make the rules, I just report them
Copyright © 2009 Tim Bryce. All rights reserved.
About the Author
Tim Bryce is the Managing Director of
M. Bryce & Associates
(MBA) of Palm Harbor, Florida and has over 30 years of experience in the
management consulting field. He can be reached at
timb001@phmainstreet.com.
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Article Published/Sorted/Amended on Scopulus 2009-08-01 15:14:00 in Economic Articles
