Is a Bad Credit Rating Good?
By Steve Gillman
Could having a terrible credit rating save you from bigger
problems? It has done just that for many young people. How can
this be? I'll start with a true story.
A Good Credit Rating
A friend, whose name I will withhold, started his adulthood
with good credit. He soon was able to get credit cards at will,
and finance cars, snowmobiles and more. He managed to make the
payments on his debt, and went deeper and deeper into debt while
he was at it. By the time he was 30 years old, he had over $20,000
in credit card debt, plus loans on cars and business tools.
It was too much to handle. He considered bankruptcy, but was
convinced that the credit card companies would reduce his balance
due if he just threatened to do so. First, though, he had to
stop paying on the cards, or the credit card companies wouldn't
believe he was in financial trouble. He did this, then drafted
a nice letter to the companies, explaining his situation. Most
of them cut at least 30% off what he owed, provided he paid the
remaining balance immediately. This he did with a home equity
In the end, his bad credit rating wasn't as bad as if he had
actually declared bankruptcy, so he was able to rebuild his credit
score. He has also begun to rebuild his credit balances. His
good credit rating has enabled him to begin again the stressful
process of overburdening himself with debt.
A Bad Credit Rating
Another friend of mine had her first credit rating based on
the phone bill in her first apartment. She didn't ever pay the
phone bill on time, and it was eventually disconnected. This,
and a few other minor credit infractions when young destroyed
her credit scores. What has this meant?
She can't borrow, so she hasn't had the pleasure of being
at the edge of bankruptcy. She can buy things for cash when she
has it, or wait until she does. Has this inability to have a
bunch of things around that are worth a fraction of what she
owes on them made her a less happy person? The opposite is true,
in my opinion. She just doesn't have the debt-stress that is
so typical today.
Is Bad Credit Good?
I am not recommending that you purposely try to get a bad
rating, but if you already have one, it isn't all bad. The habits
that got you there would probably get you into even more trouble
if you could borrow more. Look at it as an opportunity to stop
going further into debt, and a chance to learn better habits.
Start paying cash for everything. Look for ways
to make money, and more importantly, look for ways
to save money. Pay down those credit card balances (the higher
interest ones first). The moment you get those cards paid off,
start setting aside money to buy a good used car for cash. When
you've done that, start putting what would have been a car payment
into a savings account, for a future down payment on house or
a business (the only things you should borrow for). Having a
bad credit rating can be good thing, if you take it as a lesson
and an opportunity.
Related page: Debt Consolidation
- Is It a Good Idea?
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