Good Credit vs. Bad Credit
You have to play the game. Your choice of job, home and even future spouse depend upon it. Long before you were born, a system was put in place that governs your chances of “making it” and achieving the lifestyle – and life – you desire.
There is no politely backing out. You can’t throw in the towel, take your ball and go home. Credit rules the roost. What your score says about you defines you in the eyes of a potential boss, car and mortgage lender and maybe even significant other.
Why Your Credit Score is the Secret Spy You Can’t Shake
Splurge at Nordstrom’s (maxing out your store card) and forget to pay your bill? That’ll be on your next credit report. Get excited to join your friends on vacation and apply for five different credit cards to help you get there? That many inquiries in a short amount of time doesn’t bode well for you.
Or maybe, you just remove yourself and pay for everything with cash – car, plane tickets, and holiday presents. Sorry to break it to you, but this will reflect badly on your score as well, in the form of no score.
People with nonexistent credit scores are viewed as aliens from another planet – it’s best not to do business with them. You can’t win, so you must turn to bad credit private lenders when you need cash.
These days, everyone looks at your credit. Potential employers are known to run soft credit checks on interviewees, believing that if an individual is in a dire financial situation, they might be more likely to steal from the company. Nobody likes a thief.
Even when you decide it’s time to settle down with your long-term partner and tie the knot, your pre-marriage counselor might suggest sharing credit reports to promote transparency, or your future spouse might start asking questions. “Could we buy a house together? What’s your credit like?” In most every state, the responsibility of debts in one spouse’s name aren’t automatically transferred to the other spouse, but in states with a community property law this is the case.
Who Really Benefits from the Credit Score System?
Maybe you’ve lived long enough to start taking the credit system for granted. You just accept it for what it is: some people have good scores, some people have bad scores. Some people have blonde hair, some people have brown hair.
Complacency isn’t a beneficial attitude to have, but it’s understandable. It might seem like no matter what financial decision you make, your credit isn’t ever going to change. It’s not like you can get approved for a loan with a low interest rate to help you out of the rut – that would require good credit, something you don’t have.
And that is the crux of the matter. If you think the credit system is designed to help you, you’re believing a lie. The credit system is a smoke screen. It’s an excuse for lenders to scrape every little ounce of cash out of your pocket. It’s set up to financially benefit them every time.
Just Ask the Experts
While the guru behind the popular personal finance blog Financial Samurai recently published a post outlining why credit isn’t important anymore, his argument actually reinforces the idea of a broken, lender profit-driven system. He states that once you reach a score of 740, it doesn’t matter how much higher it goes, you won’t reap an increase of benefits.
The only way to continue getting lower interest rates and better offers from lenders is to prove how much you have in assets. Once you start showcasing the funds you have available, they start handing out freebies as fast as they can.
The bottom line is, they want your money. They either want you to pay high interest and fees because you have bad credit, or they want you to place all of your financial assets in their control.
Are You Destined to Fail?
The credit-based system is a vicious cycle. Those who would benefit from the low interest rates available to perfect-score applicants never come close to qualifying. Without the urgent money they need, those consumers fall further into the cycle of debt. They don’t have a high enough credit score for a reasonable loan agreement, so they take the 20 percent interest rate.
When they fall behind on payments due to the exorbitant interest charges tacked onto their loan, they’re slapped with even higher late fees and penalties. Even if they come into a sum of money and try to pay off the loan all at once, they’re faced with a disgruntled lender who decides they must pay early loan payoff penalties since their cash cow is leaving the pen.
And that’s the not-so-secret secret: this is what credit companies and banks are hoping for. They want you to develop a bad credit score so they have their reason for extra fees, spiked interest rates, you name it.
Why Are Bad Credit Private Lenders Increasing in Popularity?
Just look at the prevalence of bad credit private lenders to prove the increasing problems with our current credit system. Up until recent years, there’s been a vacuum in the market.
People with really bad credit don’t get approved for personal loans. People with medium-level bad credit get approved, but the interest rates are astronomical. Even if the individual with bad credit decides to just get by without a loan from this high-interest rate traditional lender, their need for cash does not go away. That’s where bad credit private lenders come into play.
These organizations offer reasonable rates to individuals with bad credit based on various pieces of data. They don’t require credit checks to apply, helping people with low confidence feel accepted once again.
The loan they receive might be a personal loan or a car title loan. Either way, the borrower can pay back the debt in small installments that work with their limited budget.
Another positive mark for bad credit private lenders? By giving the individual with lacking credit score a chance, they’re able to possibly earn a few points back by paying off the loan on time. Bad credit private lenders get a high level of business due to the fact that the credit system is not structured for individual success, only lender profit.
What’s Behind the Number?
Whether or not you believe good credit is or isn’t important, the truth is a score does not portray people accurately, in terms of true financial stability. Why? Because remember, credit scores are meant to benefit lenders, not people.
Picture this: person A has two general credit cards, one store card and two personal loans with $10,000 limits. They owe $3,000 on each – $15,000 total. They’ve had these lines of credit for over five years, from college up until now, in their late twenties.
Anytime they see something they like in a store or online, heck even an infomercial, they buy it. Why wait? Life is short.
They make $45,000 a year and pay the minimum on each card, just like they’ve done for the past five years. Their interest rate is less than the average 15 percent at 12 percent. With a minimum payment of 4%, their monthly obligation to each card is $120.
Multiply that by 5? $600 a month goes to credit card companies. If they’re a young, single professional taxed at 25%, almost one fifth of their net take home pay goes towards credit cards every month. It will take them over 8 years to pay off the balances, making payments at the minimum.
What About Another Situation?
Person B has one credit card with a $10,000 limit. They owe $7,500. They opened the credit line three months ago because their car needed a major repair and they didn’t want to go further into debt buying a brand new vehicle.
They have the same annual income, interest rate and they also pay 4% as their minimum payment. The monthly total comes out to $300 – half of what person A pays.
$300 is closer to one tenth of their net monthly pay. So they double up their payment in an effort to pay off the total quickly – after all it’s the only debt they have – and it only takes them 1.7 years.
If you asked anyone on the street which person is more financially stable, most would answer person B. They only just recently applied for credit because they need it. They don’t live in a cycle of debt like person A. However, the credit bureaus would disagree. Person A would most likely have a much higher credit score than Person B. Why?
How Your Credit is Calculated
Here are the specific factors that raise your credit score:
- A history of on-time payments of at least the minimum.
- A history, period. Length of time accounts are open matters.
- Utilizing less than 30% of the credit card maximum.
- A mix of credit types: personal loan, retail credit, etc.
- No recent credit inquiries.
According to these standards, person A is the ideal candidate for yet another credit card. They make their minimum payment. They’ve been using their credit cards for years. The balance on each line of credit is less than 30%. They have a wide variety of types of credit.
Person B on the other hand may have more money in savings. They’re not trigger happy with their credit card applications. They want to be debt-free and save for items before they buy rather than the other way around like person A.
It’s sad, but person B probably has a much lower credit score than person A, undeservedly so in terms of smart financial planning, but deservedly so in the eyes of for-profit banks and credit card companies who are making a pretty penny.
If you think these two scenarios are “out there,” think again. The average American household carries over $5,000 in credit card debt per person from month to month, paying an interest rate in the mid to high teens.
This is why bad credit private lenders are once again proving the system is flawed. They give low interest, flexible loans to individuals like person B and enjoy the on-time responsible payments from those hard workers.
Person A continues to feed the profits of the corporate money-making scheme that is the credit system, and they’re rewarded with the “perfect” credit score. Doesn’t it all seem a little backwards?
The Credit Bureaus Themselves Don’t Care About Your Report – Why Should You?
Just look at the prevalence of mistakes on credit reports if the popularity of bad credit private lenders and the examination of what makes up credit scores can’t convince you the credit system is faulty. Up to 20 percent of all credit reports contain errors. And when the individuals notice the problem and attempt to resolve the issue, usually it’s just next to impossible.
You have to draft a dispute letter then follow up in 30 days to make sure the credit reporting company took action on your request. Sadly, only 69 percent of disputes resolve in the borrower’s favor.
Once again, the opportunity for bad credit private lenders is only growing each day as the consumer credit system fails to care about the accuracy of the one record that could literally determine your financial fate.
If a good score is as easy to achieve as some credit companies might like you to think – “just use your calculator and make your payments on time!” – then why are 20 percent of consumers forced to challenge the accuracy of the report? A system that powerful can’t ensure all facts on a credit report are correct? The answer is – they can, they just don’t want to.
It might be frustrating to have to keep up with tracking your credit and simply caring, but here’s the thing: you have to care. This information affects you each and every day.
You want to move into a brand new apartment but the landlord might pull your credit before accepting your application. Want to borrow money against your car? Or apply for a lease on a hybrid vehicle and your credit score is all the difference in the interest rate you drive away with. How can you build up your credit and play the system, albeit reluctantly?
Use Bad Credit Private Lenders to Your Advantage
The truth is, a good credit score doesn’t help you as much as a bad credit score hurts you. Good credit isn’t your ticket to wealth, but bad credit could destine you to a lifetime of rejection. Investigate your many credit-building options today, including the chance for a boost from bad credit private lenders.