It seems like every time you turn the TV on you are bombarded with commercials trying to convince you not only the advantages of credit but the importance of your credit score, but what is truly disturbing about this is that these commercials do not focus on the desire to borrow money but on the credit score as a status symbol and I fear that this idea existed even before these commercials existed.
Choosing to define success based on income is a natural, if problematic and incorrect, system but to go to the next step and begin to show success based on your ability to borrow money is a world that is a nightmare for anyone except loan companies. It is this idea that credit is somehow important that convinces people who are otherwise good with their money to refinance their home in order to pay off credit card debts because if they don’t then they will have bad credit.
So what are the real consequences of having bad credit? What costs socially and economically will you pay for not choosing to have a high number. You will be unable to borrow money as easily. That is it, the only use for a high credit score is to borrow money, yet the only way to raise your credit score is to borrow money.
This brings us to the real point. What do you need to borrow money for? There are really only a handful of good reasons to borrow money. Buying a house or car is one, going to school is another. Others might include sudden emergencies, but the truth is that if you don’t have the debt many of these things are easy to buy without borrowing money.
The main objection is of course the house. You have to have a good credit score if you want a house loan people assume, but the truth is that you really don’t. A house loan is by definition a load with collateral, meaning that there is little risk for your loan company and if you are willing to save for some time for a larger down payment you can almost certainly borrow the money even with a bad credit score and the small increase in the interest rate for having credit that is not as good will be more than made up for by not having to pay interest on the other loans.
The car loan is a bit more problematic because the value of the car will drop faster than the loan in many cases, but this alone should tell you something. Banks want you to have a good credit score because they understand that a car loan is a bad investment and they want you to repay it even after you stop using the car. Another problem with the car loan is that they will require full coverage insurance adding another 50 to 100 dollars a a month to your bills.
The truth is that credit is only necessary for those people who are unwilling to delay gratification. It is a trap that exists allowing people to spend money that they have not yet earned putting them into a sort of servitude towards those who loaned them the money and often leading to bankruptcy which will have a much larger effect on your credit rating than anything else. Stay out of debt, stop worrying about your credit rating and start worrying about how much savings you have.