The increasing importance and reliance on credit scores can leave you feeling like less of a person when your score is suffering. You may feel like you are the value of an old broken down vehicle instead of a new sports car, or even ashamed.
Rejections and comparisons are hard to ignore. Even though logically you know a loan decline is not a personal attack on you, it still ‘feels’ personal, even if a human never actually saw your application. It is a terrible feeling to be rejected whether it is for a job or a credit application. Being told you need a $500 deposit for a new cell phone service or be relegated to the pre-paid phone world can leave you feeling dejected. You may be left feeling like you are not good enough, and that will impact more than just your wallet.
Sometimes in order to fix a leaky boat you have to stop rowing and address the problem. To eliminate debt from your life, it may require a temporary drop in score, but a better long term view of a healthier financial future.
That’s Ok because your credit is really just a number!
Are you desperately holding onto a low 600 score trying to keep it from falling any further? Are you trying to pay off credit cards but find every time you get the balance down, another unexpected expense arises that puts you back ate the starting line? Are you doubling up on payments, only to find you are short at the end of the pay period and need credit to get you through to payday?
These are frustrating and common examples of the boat millions find themselves in. You genuinely want to free yourself from debt while improving your score at the same time. The reality is that a 620 score offers you no more leverage than a 580 score, even though psychologically it feels so much better. Once you fall below the 700 or 680 mark, application declines are inevitable and getting ahead of the game may be faster and more productive if you stop rowing and fix the boat you are in right now.
This may mean a temporary decline in credit (maybe significantly), but even over the short run, it will leave you better off. The scenarios above can result in that low 600 score for a decade or more, where a drop to even 500 through credit management could reward you with that coveted 700 score or above in a few short years.
What Your Credit Score Says About You
Your credit score is a calculation by a computer that puts a number to your ability to pay bills on time and manage credit responsibly. It is nothing more than an indicator of your relationship to debt. That’s all, nothing more.
It was first established for lenders to evaluate the risk of offering credit to clients based on past payment history.
It ONLY measures the amount of debt you are carrying and the minimum amount of payments required each month to keep the accounts current. The score is a cumulative record of your accounts and any late payments or public records reported in the last seven years. Negative information is not reported after seven years, except for bankruptcies.
What Your Score Does NOT Say About You
The credit score DOES NOT measure important aspects of your financial life including:
- Debt to Income Ratio
- Net Worth
- Retirement Investments
- Value of Your Home
These factors can be more important to your overall financial state than the credit score alone.
The credit score also does not qualify your circumstances or desire to pay off debts in a timely manner. It does not take into account that you lost your job or went part time to take care of aging parents. It does not consider that you lost a child or are experiencing a divorce. It does not draw an accurate picture of you, your level of overall responsibility, or your struggles to do the right thing.
Your credit score does not represent your worth as an individual.
The Psychological Impact of a Lower Credit Score
Studies have shown that those with good credit feel more empowered than those with poor credit. If you have strong credit you are more likely to call your creditor and negotiate waived fees and dispute issues with your credit report. If you feel your credit is poor, you need these services more but are less likely to make the call even though you may be granted the same benefits.
In this sense, poor credit can make you FEEL like you are not worthy of a break, and can keep you in the cycle of struggling with payments longer than necessary, which is untrue. Remember, this is a just a feeling, not a fact.
How to Move Forward
- Distance yourself from the credit score itself. Obsessing about your credit report or score will not get the numbers up any faster. While you should not ignore the problem, reviewing it frequently can be self-defeating because it reinforces the feelings of inadequacy.
- Review your score quarterly to see if any changes indicate fraud.
- Review your report annually to protect against unauthorized accounts.
- Check credit statements monthly to protect against fraudulent charges.
- Stop applying for credit.
- Stop adding to current debt balances by taking credit cards out of your wallet.
- Use cash to break the spending patterns that can occur when credit cards are used to pay for everyday expenses.
- Don’t bury your head in the sand or set unrealistic goals. Pretending your credit problems doesn’t exist will not improve the score or help you build a strong profile of responsible payments. Assess your situation and take positive actions to meet your long term goals. Don’t try and pay off $50,000 in debt in 12 months or save $500,000 for retirement in five years. It is self-defeating to set unrealistic goals and then judge yourself based on your lack of success.
- Start small. Put all your debt on a spreadsheet and tackle one debt at a time. If that’s too overwhelming, get help sooner than later.
- Take it one day at a time. It may be necessary to make deep budget cuts in order to find money to get your financial house in order. Waiting for your ship to come in, when you are financially sinking, can lead to more drastic measures the longer you wait. Patch the row boat while you are still floating. Rescue boats in the form of major financial windfalls often never arrive.
- Credit Issues can be temporary if you put in the work to improve your finances. Staying focused on the long-term view of your goals can help you see past any temporary drops in credit that you may experience on your road to financial recovery.
Your credit does not need to define your worth either financially or as an individual. If your score is a source of stress, seek out ways to get your whole financial picture in better shape and over time, and your score will take care of itself.