A bad credit rating is usually considered a problem, but is it always so? Are there circumstances where it can be beneficial?
Credit is a tool that has to be handled with wisdom to be of value. Being able to borrow money or get credit cards doesn’t automatically make a person able to handle that power. In fact, it has gotten many people into serious financial trouble. Wouldn’t it have been better for many of them if they had not been able to obtain credit?
Bad Credit Rating – Two True Stories
A friend, whom I will call Jill, didn’t pay a phone bill early in adulthood, and made a few other minor mistakes that hurt her credit rating. While it was true that this made it difficult to get a home mortgage later in life, it is also true that it made it almost impossible for her to get credit cards. This was a a good thing, as even she will admit. She just wasn’t ready to handle that kind of responsibility, and so her poor credit rating has prevented her from getting deep into debt.
As a result, Jill has to pay cash for things, or wait until she saves enough money. Does this make her a less happy person? Not as far as I can tell. While it’s true that she wants to borrow and get credit cards, her inability to do so also means she doesn’t have the debt-stress that is so typical now.
Another friend, whom I will call Mark, started his adulthood with a good credit rating. He could get credit cards at will, and finance cars and snowmobiles too. He did all of it. With a decent job he was able to make the payments on his debts – at least at first. But by the time he was 30 years old, he had over $22,000 in credit card and other consumer debt.
Eventually it was too much to handle, and he only avoided bankruptcy by convincing the credit card companies to reduce his balances due. To do this he had to stop paying on the cards, or the companies wouldn’t believe his letter explaining his dilemma. Most cut at least 30% off what he owed, provided he paid the remaining balance right away, which he did with a home equity loan.
As a result of this maneuver, his credit rating wasn’t as bad as if he had actually declared bankruptcy, and he was able to rebuild his credit score – as well as his credit balances. He quickly began again the stressful process of overburdening himself with debts. So was Mark’s decent credit rating a good thing? He has some nice “toys”, but as his friend I also see the added stress and unhappiness.
Credit Lessons And Opportunities
A bad credit rating certainly is not something to aim for. On the other hand, if you already have one, why not see it as a lesson and an opportunity? The lesson? Your habits got you there and they would probably get you into more trouble if you could borrow even more money. The opportunity? Learn these lessons and develop better habits.
Pay cash. Get in the habit of saving for things. Knock down those credit card balances. Start setting aside money for a good used car that can be bought without a loan. Then start to put aside what would have been a car payment for a future down payment on house or even a business. Your bad credit rating can be a good thing, if you learn your lesson and seize the opportunity to become a better manager of your personal finances.