Credit scores have become a popular measure used for application approvals. It is now used well beyond its initial use as a criterion for loan approvals. Companies are continuously looking for ways to quantify a person’s risk. They seek ways to differentiate applicants and to narrow down the field on who the company wants to do business with. Currently, the credit score has moved to the front of the line and is now used by companies considering employees, utilities determining deposit requirements, and apartment complexes screening potential renters.
Poor credit can not only result in higher costs of services but can put a new job or housing on the line. Because of its heavy weight, a low score can also impact your self-worth. Poor credit may cause you to lose sleep at night and worry about staying with a company or service you are unhappy with. It can leave you feeling trapped. Can you change jobs or even change cell phone providers? You get offers in the mail for new satellite dish or internet services and you don’t want to investigate because you know credit is also part of the approval process. No one wants to be rejected! Poor credit can leave you feeling like you are untrustworthy and even less valuable.
The Truth Is, It’s Only a Number.
Your credit score does not tell the financial story of your life. It does not show the compassion you have for others which may have resulted in working less to care for a loved one. Credit struggles may have come from a job loss or under employment. It does not paint an accurate picture of your desire to provide for your family and improve your employment situation or the late nights studying to increase your marketability. Most people do not get into trouble with over extended credit because of too much partying and luxury vacations.
Struggling with credit only says you have hit a bump in the road, not that you have personally lost value. It only says your expenses have exceeded your income and now you are in a bind and need help getting out.
We live in a very consumer driven economy and tend to look at a persons value based on income, the neighborhood you live, or the car you drive. Public measures of worth can be fleeting and unrealistic. Accumulating more stuff certainly did not tell your personal story, any more than poor credit does.
The long-term picture is much more important than what your credit score is today.
What Story Does Credit Tell?
Your credit score is a mathematical calculation from dozens of data points found on your credit report. It tracks account balances, credit limits, payments, collections, and judgments. It measures how you pay bills. When payments are late your score may fall dramatically and that can be scary. You begin to wonder what that looks like to companies you currently have accounts with as well as others who may review your record.
It’s a Fact not a Feeling: All credit does is measure how you pay bills and the amount of debt you currently carry.
The irony is that struggling to maintain minimum monthly payments could leave you with marginal credit over a longer period of time. Yes, you do not have the drop in score that comes from a default, but you also don’t have the extra funds available to dig yourself out of debt. With most of the payments going towards interest, it can take decades of struggle to free yourself from high debt payments and enjoy an improved credit score.
The two biggest factors in your score are on time payments and debt load. Having all payments made on time but maxed out cards will prevent your score from improving. It is like having your hand in the cookie jar. As long as you insist on holding both cookies you can’t get your hand out of the jar because the top is not wide enough (or income not large enough).
It can be difficult to let go of one piece of the puzzle in order to gain control over another.
Letting go of on-time payments in exchange for quicker debt payoffs will improve your score faster than continuing to drown in debt payments. Focusing on the long term goal of debt elimination does cost you with an initially reduced credit score and takes a certain amount of bravery. Yet, the results are immediate relief from overwhelming payments and a long term solution for getting rid of debt. As balances are paid off, your score will recover. The recovery time speeds up as you continue in the program.
Financial information NOT Found in The Credit Score Calculation
Employment and income. Credit reports and scores do not tabulate income, job security, or employment satisfaction. Increases in job responsibility, promotions, raises, the quality of your work, or your value to the company is not found in the credit report or considered in your score.
Family circumstances. While the debt to income ratio is implied by the utilization ratio and balances you keep, there is no information regarding your budget and the family obligations you are keeping. Family size, how you are raising your children, and what your personal values are, is not recorded. Debt may have been incurred due to unforeseen medical crisis, caring for aging parents, job loss, or other financial circumstances that caught you off guard.
Assets and Net Worth. Savings, investments, and college planning, are not among the points measured in your credit score. A credit score only measures debt and does not consider any assets accrued along the way. Any other financial strengths or good financial decisions are not deduced from the information found on your credit report.
Equity in your home. Mortgages are listed, along with account balances and monthly payments. No other information regarding the largest asset most people own is found. Home improvements and homes with no mortgage are not recorded.
Overcoming the Psychology of a Falling Score
Moving beyond your credit score requires you to put some distance between you and the score. Now is not the time to sign up for a credit monitoring service that reminds you of your shortfalls on a regular basis. Monitor credit periodically but not constantly. Stressing or worrying about it does nothing to improve the situation.
Take positive steps to improve your score. As you are paying off old debts find ways to get positive marks on your score consistently. This might mean being assigned as an authorized user on someone’s account who has excellent credit or getting a secured credit card. Make small purchases and on time payments so positive things are rebuilding your credit.
Be patient. Credit issues are not permanent and over time your score will improve. The day will come when you will be able to make decisions based on your needs, without considering whether or not the company wants to review your credit file.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website here http://timberlinefinancial.com/contact-us/.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a free financial analysis.
Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high-interest credit card debt any longer.