10 Jul When Being a Number Goes Wrong
It’s technically your credit score, but it can feel like the number that inmates get when they enter a prison. It soon becomes one of your identifying factors.
You are no longer Mark or Lisa. You are 750 if you’re lucky or 500 if you’ve hit some bumps along the way.
While the credit industry has long felt that these numbers are the best way to identify people, there are some problems with this. In fact, there are numerous instances when being a number goes wrong.
What Does a Credit Score Tell Lenders?
Most lenders have the false impression that they can learn everything they need to know about you by looking at a three-digit score. Because of that, they base loans on the score. They immediately decide if someone can and will pay back a loan based on that score.
In reality, your score doesn’t indicate if you have the ability to pay back a debt. The score only tells what you have done in the past. It doesn’t indicate what you’re capable of doing today or in the future.
Because of that, many people are denied loans, even though they have the power to pay them back. Others are granted the same loans, even though they don’t have the means to pay them back. This could create a credit crisis.
Your Circumstances – The True Indicator of Your Repayment Ability
Your circumstances are much more telling than your credit score. Circumstances can make scores go up and down, just as circumstances can cause someone to either be able to pay a loan back or default on it.
Let’s look at one experience that could impact your score. You could be going through a divorce, and the judge might rule that your spouse is responsible for the joint accounts during the proceeding. The spouse doesn’t make the payments, and your score plummets. You still make just as much money as you did before the divorce, and you will certainly pay back any debts that you incur, but it doesn’t matter. The divorce made your score drop and that, in turn, makes lenders think that you’re too high of a risk. This is an example of the credit scoring system letting a responsible consumer down.
Now, let’s say that you have a credit score of 800. That’s a killer score, but you have a problem. You got fired from your job, and you have no income. You were never a very good at saving money, so you take out a loan to help you with your expenses. Little does your lender realize that you don’t have the means to pay the loan back. This is an example of the credit scoring system letting the lending industry down.
Become More Than a Credit Score
Fortunately, some lenders view people as more than numbers on a page. There are lenders out there who will look at your circumstances when determining your creditworthiness. For instance, if you have gone through a divorce, your lender might consider that. In addition, if you have received a promotion, your lender might realize that you can now pay back loans that you could not pay back in the past.
Talk with your lender about your circumstances so he or she can understand that you have merits beyond your credit score. Being ruled by your credit score is a frightening prospect. This is especially true when you consider that millions of people have false items on their credit reports and those items hurt their scores. Get some of your control back by removing those items from your credit report. Then, you might still be a score, but that score will be higher than it was in the past.