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Credit Score has always fascinated me. It is this cosmic number to which most believe it is the mark as to say and tell what kind of human we are. Most believe in this number, but they really have no clue how it is derived and or calculated. There is not much information readily available to the citizen to find out how on a daily basis their credit score is calculated, but yet most are terrified to do anything to effect their score negatively.
When do you need credit, when you want to borrow money? When is it necessary to borrow money, when you do not have enough to purchase what you either want or need? I believe the majority of time it is our wants that dictate our need and desire for good credit, not always our needs. For me personally the two major needs that require credit are transportation and housing. Most people live and work miles away, therefore a vehicle is a need. Unless you decide to drive a base model KIA, you will spend more than $10,000 on a new car. If you have cash available and do not have a problem with vanity and status pay cash for a good used car and be done with it. Paying cash does not require a credit score and keeps the monthly car payment off your budget sheet. A home is a need. Whether you live in an apartment, condo or home, a credit score will be used to provide a shelter. An apartment will look for delinquency on other apartments and or major purchases. If you are looking to buy a home or condo your credit score will reflect what interest rate you will have and or what down payment will be needed to fit the mortgage into your budget. The lower your score the higher interest rate you will pay. I used to sell cars and it always made me laugh when people told me that they could not buy a car because there credit score was bad. I have sold cars to people with scores over 800 and fewer than 400. How? Debt to income and interest rate! Having a low score will not benefit you when it comes to interest rate, payment and money down, but it will not necessarily prevent you from buying an automobile. On the other end of the spectrum having an 800 credit rating is good, but if your debt to income is too high it will be difficult to purchase high dollar items and try to fit a car payment into a limited budget. One of my biggest obstacles being in the Debt Settlement industry is people who claim they do not want to ruin their credit. The initial shock to me is that they truly believe that having 8 credit cards and thousands of dollars in debt is actually helping their credit score. This is a big misconception. The initial concept of credit rating was to reward those who borrowed and paid the debt of in full, not over 20 years. This article is for those individuals who find themselves buried in debt, just paying the minimums every month and who do not see their debt decreasing and or their credit rating increasing. Another fascinating concept to me is how few people know what their credit score is. If I polled ten random people on the street I would bet maybe 3 out of the 10 actually knew what their credit score was, and they more than likely know only because they recently purchased a large item and needed it. I speak with people every day that have $30,000 to $50,000 in credit card debt and need help. When I explain debt settlement or credit counseling to them they shriek at the thought of their credit score being affected during the process of getting out of debt. They fight and justify how keeping their credit score where it is will be more beneficial to them than getting out of debt. When you do the math it is staggering the place we find ourselves when we have credit card debt and our budget only allows for the minimum payments to be made. Granted this is a trap the majority of us put ourselves into. Let's split the middle and look at someone who owes $40,000 in credit card debt. Mathematically it does not look good. If you have $40,000 in credit card debt and are just paying the minimums and your average interest rate is 20% this is how the math works. Yearly minimum cost: $9600
Yearly average reduction: $1596 ($8004 paid to interest)
Years to pay it off: 25
Total average cost: $240,000 It is a sobering thought to realize that buying $40,000 worth of items on a credit card will eventually cost me $240,000 and take 25 years to pay off if I only can afford the minimum amounts. A large portion of Americans find them selves in this situation, yet when confronted with an option to get out of debt do not pursue on the grounds of any affect on their credit score. These individuals are convinced that their credit score is an invaluable item and need to survive that they are willing to pay six times what they owe and spend a third of their life paying for it. The hard reality is that over the twenty-five years and $240,000 worth of debt their credit score may go down anyway or if it increases will not increase extensively unless large purchase are made and paid in full immediately. If you find yourself believing that credit score is important than you are correct, but what is more important than credit score and will serve a greater purpose throughout your entire life is having no or minimal debt. Credit score can always be recouped in a short amount of time, but being debt free and or having savings and retirement is truly worth its weight. Don't let the credit rating system keep you from becoming debt free. It may take you three to five years to go through a settlement or counseling program to get out of debt and your credit score will be affected, but the alternative is a financial prison sentence and by serving it you are not helping your credit score you are just maintaining a debt score. Please take time to educate yourself on the alternatives to bankruptcy and how the credit system really works and the ability for credit repair companies to restore your credit score after you have eliminated your debt. www.debtregret.com |
