Hey everyone, thanks for coming to read Friday Finance with Josh this week! I’ve covered a lot of topics here but, there are few topics that I’m as passionate about as the one that I’m talking about today. The bottom line is that there’s just too much concern going into credit scores. Now, I know, most of my regular readers are saying, “What, What, What…where are you going with this one Josh?” but trust me, it will only help your credit!
The bottom line is, as a personal finance blogger, credit card debt consultant and credit repair specialist, I talk to a lot of people about credit scores. One of the biggest questions I get is, “What are the tricks to getting a good credit score?” and, that really bugs me! When you think about credit scores and what they are designed to do, it is easy to see that if you’re asking this question, you’re going about it all wrong!
Credit scores and credit reports were designed to fill a need. Before these systems, when lenders gave a loan to consumers, they did it on a smile and a hand shake. They had no idea what the probability of the loans being paid back was on a per consumer basis. This lead to huge losses that good borrowers ended up having to pay for. So, on a widespread basis, everyone had pretty high rates to cover the risk of those that might not pay back.
To solve this problem, credit reporting agencies were born. These credit reporting agencies would use social security numbers to follow a consumer’s financial habits from birth to death. In doing so, when a consumer wanted a new loan, the lenders could pay for a copy of the consumer’s credit report and score to gauge the risk associated with giving a loan to that specific consumer. The higher the risk, the higher the interest rate, the lower the risk, the lower the rate. It really is a win, win for all parties involved.
Now, with a system that is as vital as gauging risk on what our economy was built around, debt, there are many secret pieces of the algorithm. It has to be that way or, the scoring system would be too easy to game and the entire idea of credit reports and scores would be a pointless concept. Therefore, when you try to play tricks on your credit report, your score will generally have a bad response!
Don’t worry, I’m not going to leave you by saying, “There is no tricks to building your credit score…haha…so there!”, I do want to give you the biggest tip you can ever get when it comes to establishing credit scores or fixing bad credit scores. Are you ready? OK, here we go…
Stop Thinking About Your Credit Score And Start Thinking About Your Financial Stability!
If you are only thinking about your score, you may make bad financial decisions to try and game the system. Fortunately for all of us, that will never work. Because the credit report and score system are designed to show the probability of a consumer paying a debt back, we can say that it’s all about financial stability. The more stable you are financially the higher your credit score will be. Therefore, if you have bad credit scores, you should think of what you can do to become more financially stable, as that happens, your credit score will go up.
I admit, it’s cool to know how the credit scoring system works. But, it’s important to leave it at that. Never base a decision on how it will effect your credit score. By basing decisions on how they will change your long term level of financial stability, you will be much better off!
About The Author – Joshua Rodriguez