What is a credit score, really? In this country we have made it our gateway for destruction. Think about it. A high credit score makes it easy to borrow money, and borrowing money invites elevated risk into our financial lives.
Money is fundamentally risky, so to succeed at the money game, we must reduce that risk as much as possible. In comes the credit score.
What does a good score tell us?
It tells us that its owner borrows quite a bit of money, and then pays their bills.
What does a low credit score tell us?
This is a more difficult question. A person that is financially responsible with their money can have a low score if they don’t borrow enough money. The utilities and rent could be paid early each month, and this person could have a great salary and money in the bank, but they would be considered a credit risk because of a low score. Now, it is a good judge of a person’s financial integrity in regards to their repayment of debt.
What it doesn’t take into consideration is the pushy and unethical practices of many credit card companies and lending institutions. Unfortunately, as unfair as all this might seem, these financial decisions that we make have enormous consequences. Low credit scores can increase insurance rates, increase interest rates on money you borrow, and can even keep you from getting a job. These scores are available for a small fee, and almost anyone with your social security number can request a copy.
Almost everyone who buys a house, mortgages a portion of it. This is a very big investment to most Americans. A low credit score can increase your rates significantly, costing you thousands of dollars, make it harder for you to make your payments, and ultimately bring the risk of foreclosure in hard financial times.
Bankruptcy may seem like the easy way out, or even the only way out, but it can have even worse consequences. Bankruptcy stays on your credit reports for 7 years in most cases. This makes trying to finance anything major, like a house or a car, during this time very difficult at best. The worst part of this financial choice is that many contracts ask if you have ever filed bankruptcy. This decision is one that could follow you for the rest of your life.
The best thing for us to do is to listen to our parents and work hard and save for the things we want. Remember that everyone makes mistakes, everyone falls for wants over needs from time to time, and we’re all in this together.
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