Fico credit scores are big business these days and many older people lament the changes which the reliance on credit scoring has brought. Gone are the days of a cosy chat with your local bank manager who would shake your hand as he signed the paperwork for your new mortgage or auto loan. This has been replaced by an anonymous person checking your credit score to make the all important decision which could determine if your loan is approved. Their decision will be heavily influenced by your credit score which thus affects your standard of living by even impacting on where you live.
Of course before the mass use of credit cards people simply saved up for the things they needed, apart from the big ticket items such as houses and cars. With the reliance on credit cards these habits have changed and credit allows people to buy the things they can’t afford, instead of saving up for them. When it comes time to repay and problems arise credit scores plummet and have a knock on affect on the standard of living, as people need to rein in their spending as credit becomes no longer available.
So many people have fallen foul to a low credit score due to allowing credit card debts to run out of control, that their whole standard of living is affected. A large portion of their monthly income is used to service the interest on their debts. The interest rate they pay will have risen due to their credit score falling, and even the costs of borrowing to consolidate debts and try to take back some control rise as they can no longer get preferential interest rates due to low credit scores.
Low credit scores leave traditional lenders slamming the door in the face of past customers, who are then reliant upon the less salubrious lenders who advertise ‘bad credit’ deals with high fees and interest rates attached. People feel the stigma of dealing with sub prime lenders as they are turned away by most other lenders unless they resort to secured credit cards.
Reliant on sub prime lenders if they need credit, people find their standard of living affected as everything suddenly costs more: they will pay more for their insurance premiums, home insurance, loan repayments and mortgage interest rate. They can even lose the job they have or the job they aspire to through a poor credit score, as employers increasingly check FICO scores routinely before offering employment. A low credit score is interpreted not just as a representation of irresponsible dealings with money, but as a sign that someone will not be a responsible employee. Sinking credit scores give people bad reputations, rightly or wrongly.
Credit scores can also improve people’s standard of living as a high score gives access to preferential interest rates, and the invitation to use credit cards which work to their advantage by paying cash backs on every cent spent. A high score almost guarantees ease of borrowing when required and can help parents to ease the way for their children to obtain student loans and thus make a difference in their future too.
Credit scoring is not new: FICO has been around for a long time but never before have credit scores had such an influence on the way people live. As realization dawns on many it could well have the result that people begin to be less reliant on credit and give more importance to living within their means, and using credit responsibly.