Credit Score Myth

It seems that every activity we do everyday is tied to some sort of reminder to our credit scores.  Whether it is some ad on the radio, an e-mail, billboard, or television, we are constantly being reminded that this number is the most important number for our financial well-being, and protecting it can mean the difference between prosperity and poverty.  

The purpose of the credit score is to allow creditors to take a glimpse at someone's financial history, more specifically, how successful one has been in paying their bills in a timely manner.  

This number can be the difference between a $100,000 loan and a $1,000 loan.  It can be the difference between a 2013 Audi A8 and a 1993 Geo Metro.  It can be the difference between a 3.5% interest rate and a 6.5% interest rate.  Because of these differences, I can understand why creditors place so much weight and focus on this number. 

However, this score might be the most overrated and overused number that we have become associated with.  

Why?

Because, for many, it is a gauge that indicates how much debt, or more debt, one can acquire.  Overrated because people actually go through great lengths to ensure a favorable score, and overused because people actually use it to take out unnecessary loans.

An acquaintance of mine, I'll call him Rick, actually considered himself a millionaire because he took advantage of his credit rating.  He took out loans to buy several expensive cars, boats, houses, and a plethora of other expensive toys.  The combined value of those assets were enough to place him in his desired financial status.  

Unfortunately, too many people abuse their credit score in the same way.  Instead of being responsible, they take advantage of their available credit to satisfy a craving.  

Rick eventually lost everything.  He failed to make the payments and eventually filed for bankruptcy.  I wish I could say that this was an isolated incident, but stories like this happen all too often.  

If people were willing to be responsible for their own financial well-being, banks wouldn't have over lent, people wouldn't have defaulted on loans, banks wouldn't have gone bankrupt, and the most recent economic turmoil may have been averted.  

And yet, these are the people that complained about the economy.  These are the people that blamed Washington D.C. for their foreclosures and repossessions.  

These are the people that enthusiastically grabbed their own ankles, begging for their credit scores to rape them.