It’s difficult to live the American dream without good credit, particularly if you are trying to keep up with your peers. Credit is a tool that expands your purchasing power. It should be used properly to enable purchasing power, with the least cost out of pocket. Credit, if used properly, can buy a person both time and opportunities.
America, for the past forty years, has rapidly shifted away from making purchases with cash and has moved toward credit. Although economists have theorized the overall effects of the buy now and pay later lifestyle people who don’t understand the credit system are headed for financial disaster. However, without “good credit” the only alternative is to inherit money or win a lottery. Cash is still KING but unfortunately we live in a credit based society and world.
What is Credit and Do You Need It?
Credit is defined as a favorable reputation derived from the confidence of others; good opinion founded on the belief of a person’s veracity, integrity, abilities, and virtue and honor; whereas, a creditor is someone who is willing to place his/her faith in you. The work creditor is derived from the Latin word “credere”, which means to put faith or trust in or to believe. Credit can also be defined as money borrowed that is based on trust. The lender or the person who provides the money to a borrower trusts that borrower will honor the debt and pay it back according to their agreement.
Each time a person applies for any type of credit or financing a credit report is pulled from at least one of the three major credit bureaus. While there are many smaller credit bureaus around the country, virtually each one is affiliated with Equifax, TransUnion, or Experian. These credit bureaus collect and maintain information on the majority of Americans. The credit bureaus are for-profit corporations and they sell your personal information for a fee.
“Good Credit” versus “Bad Credit”
Financial institutions view the majority of people with low credit scores as “bad people”. While some people are negligent with paying their bills or paying them on time there are others that are not aware of how the credit system works or how credit decisions are made. Many consumers imply are not aware that a credit system exists. So how do people learn about a system that does not exist to them? And how do people build their credit score or make good credit decisions when they haven’t been taught how credit models are designed? The more unaware consumers are the more likely they are to make mistakes that could damage their credit score and cause them to move down a path to debt and poverty.
How many people could afford to take the time to save enough cash to purchase a new home or automobile? So credit could be looked at as a necessary evil. Credit can help consumers take advantage of investment and business opportunities that would not otherwise be obtainable.
Every day, many of credit worthy Americans are denied credit on the basis of unfair credit and inaccurate credit reports. Without “good credit” the best financial opportunities are out of reach, even to people who have big dreams. All too often, good people fall into credit and debt pitfalls not because they are not smart or bad people but simply because they have not been taught how the CREDIT SYSTEM really works. Knowing how the credit system really works is the first key to becoming financially free.
“Good credit” is considered to be a credit score of 660 and above whereas “bad credit” is defined as a credit report with any information, or lack of it, that may cause a consumer to be denied the best credit terms. Any negative credit can be a major credit obstacle for most people. It is also a myth that a lot of people can outweigh a little of negative credit. Many people find out the hard way that as little as one late payment can cause credit denials or higher interest rates for every loan they apply for.
Did you know that “subprime” consumers (people who have credit scores of 660 or below0 are charged higher interest rates and pay much more for everything they finance? Banks and lenders charge higher interest rates to “sub-prime” consumers because of their low credit scores. Low credit scores to lenders mean subprime consumers are a higher risk and may not repay their loan. Banks and lenders make thousands of dollars from interest rates alone when consumers are charged high interest rates like 23% on a credit card.
Today’s youth have grown up in an era of relative economic prosperity … as a result they unwittingly dribble away savings on dollar at a time.
Today’s Youth
• Are impressionable and easy targets for financial institutions. Many times credit card companies, take advantage of high school and college age youth so parents must help youth distinguish between wants and needs and judge when they have enough material needs.
• Have money and spend all of it. But who teaches youth how to limit their spending or how much to save for long-term purchases?
• Watch parents use ATMs (magical sources of money). Who brings home the hard lesson that money must first be deposited before an ATM withdrawal is possible?
• Are computer and tech-savvy enough to bank on-line. But there is more involved with on-line banking than working a mouse.
• Use their parents’ credit cards or have their own. Who teaches youth that credit card transactions create debt and that debt eventually must be paid?
