The Good News About a Lousy Credit Score

Many people have seen their financial stability (and thus their credit score) plummet over the past few months. Allow me to quote, paraphrase, and somewhat channel Dave Ramsey on this issue:

• The more money you have, the less you need to rely on your credit score. Credit scores are basically for getting credit. If you have plenty of money, you will not need credit and therefore it won't matter what your credit score is.
• Cancel your credit cards, get out of debt, stay out of debt, and never use credit again. Yes this will mess up your credit score because your credit score is based on having and regularly using credit. On the positive side, if you have no debts, you will actually be able to SAVE money.
• Lousy credit entries stay on your credit report for seven years; after that they will drop off.
• People become so worried about their FICO scores that they do dumb things...like fall victim to credit cards with high interest, get deeply in debt, or open credit accounts in order to get a T shirt or Frisbee (especially on college campuses). They justify what could turn out to be poor credit habits in order to "build up their credit".
• Now that the credit markets are tightening up, if you have a bad credit score, you will not be able to get any more credit. This is how it should be. Unlike the financial fantasy many credit companies were in for the past decade and which led to the downfall of our economy, people with bad credit don't need even MORE credit to add to their problems.
• If you have bad credit, you probably have been treated to a close up view of the credit industry underbelly--skyrocketing interest rates, horrendous collection practices, poor customer service, and randomly cancelled credit cards. What's good about this? These things will make you never want to use credit again. Kind of like reaching for a cigarette and getting a shock therapy jolt; this physically and psychologically sours you on what you originally thought was such a wonderful idea.

Now don't let these points encourage you to trash your credit score. It is just a reminder that there are many things that are more important than a FICO score and going through a tough financial time can realign your common sense and actually have a positive outcome (like not letting you bury yourself deeper in debt or making you hate the credit industry so much that you never touch debt again). Note that credit scores can be used by potential employers, insurance companies, landlords and others who will use your credit score to rate you as a person and this could have a negative impact in these areas. There are ways to work around these issues, however.

The Evils of Credit Card (Companies)

I am not a fan of credit cards. Yes, some people can use them strategically and properly and have absolutely no problem with them, however most who use credit cards need to be protected from themselves and from the ever evolving lows that the credit card companies will go to in order to both make money and create more problems than ever for credit card holders.
The latest scheme from many credit card companies includes cutting limits then charging the customers for being "over the limit" when they weren't just a month ago. Also, a number of very good credit card customers have seen their card limits cut, their cards cancelled all together, and their credit dinged through no fault of their own. Some have even been offered "bribes" to cancel their credit cards. It is my fervent hope that these horrible credit card companies (not the few which do business in an honest way but all the rest) promptly go bankrupt and cease to exist. Anyway, I digress, here's some ways to work the credit card situation to your benefit:

• Don't rely on credit cards for emergencies. When you need it most, you may find your limit decreased or your card cancelled all together. A better choice? Put $1000-$5000 in a bank account or two that you can access with an ATM card that can be used as a credit/debit card. The payoff? You will be using your own money, paying zero interest, and you may even make interest on your money while it waits for an emergency. Some people think this sounds like a lot of money but it really isn't when you consider how much can be made from a garage sale, from getting rid of some stuff on eBay, or by working an extra job for a month.
• Pay off your credit cards ASAP. The only way not to lose at the credit card game is not to make yourself a victim to the whims of the credit card companies. If you don't use credit cards and don't have any balance on credit cards, you won't fall prey to their shady tactics.
• Check your credit report annually at the minimum. You want to make sure the information is accurate and that you don't have any "mystery" credit cards in your name.
• Consider paying cash for everything. The people who really don't worry about their credit scores are the people who don't need them. These people pay cash (ie: check, cash, or debit card) for everything from groceries, to cars, to real estate. It really doesn't matter what the credit bureau says about you if you aren't relying on it for a loan. True, employers, insurance companies, and others may use your credit report for their own purposes but you can get around this by explaining your rationale about not using credit and backing it up by being debt free and having a solid stash of cash on hand.
• Opt out of receiving junk mail. Not only will this help keep the planet green and cut down on the amount of junk papers you need to shred/recycle, it will also help protect you from identity theft. A common scheme is to pick up the pre-approved credit card application that you ripped up and tossed in the trash, and put the identity thief's info on the application. The card and bills can be hijacked by the thief but the damage they do can be found on your credit bureau reports for years to come.