Wednesday, April 22, 2009

The Good News About a Lousy Credit Score

Many people have seen their financial stability (and thus their credit score) plummet over the past few months. Allow me to quote, paraphrase, and somewhat channel Dave Ramsey on this issue:
  • The more money you have, the less you need to rely on your credit score. Credit scores are basically for getting credit. If you have plenty of money, you will not need credit and therefore it won't matter what your credit score is.
  • Cancel your credit cards, get out of debt, stay out of debt, and never use credit again. Yes this will mess up your credit score because your credit score is based on having and regularly using credit. On the positive side, if you have no debts, you will actually be able to SAVE money.
  • Lousy credit entries stay on your credit report for seven years; after that they will drop off.
  • People become so worried about their FICO scores that they do dumb fall victim to credit cards with high interest, get deeply in debt, or open credit accounts in order to get a T shirt or Frisbee (especially on college campuses). They justify what could turn out to be poor credit habits in order to "build up their credit".
  • Now that the credit markets are tightening up, if you have a bad credit score, you will not be able to get any more credit. This is how it should be. Unlike the financial fantasy many credit companies were in for the past decade and which led to the downfall of our economy, people with bad credit don't need even MORE credit to add to their problems.
  • If you have bad credit, you probably have been treated to a close up view of the credit industry underbelly--skyrocketing interest rates, horrendous collection practices, poor customer service, and randomly cancelled credit cards. What's good about this? These things will make you never want to use credit again. Kind of like reaching for a cigarette and getting a shock therapy jolt; this physically and psychologically sours you on what you originally thought was such a wonderful idea.

Now don't let these points encourage you to trash your credit score. It is just a reminder that there are many things that are more important than a FICO score and going through a tough financial time can realign your common sense and actually have a positive outcome (like not letting you bury yourself deeper in debt or making you hate the credit industry so much that you never touch debt again). Note that credit scores can be used by potential employers, insurance companies, landlords and others who will use your credit score to rate you as a person and this could have a negative impact in these areas. There are ways to work around these issues, however.


  1. Lots of truth in this column. I've seen the bad side of credit and I'm not interested anymore. I haven't used credit in 3 years. It is a wonderful freedom!

  2. What about student loans? How can you get out of that bad situation?