The Real Importance of Your Credit Score

Getting credit after bankruptcy is the most frequent search term that bring visitors to Bankruptcy in Brief, my encyclopedic sister site on bankruptcy.

In these visitors’ minds, the impact of bankruptcy on their credit score is critical.

It’s ironic that readers, saddled with enough debt to consider bankruptcy, worry about their credit score. After all, credit is what got them in their current situation.

It’s the same face to face. …often in the first 5 minutes of our meeting.

Others  proudly tell me that they have “perfect credit”: that translates as “never having missed a minimum payment.”

Some follow with a declaration that they won’t file bankruptcy if it will hurt their credit score.

Huh?

What they miss in their decision-making process is that they can never pay off the credit they have! And their first concern seems to be how soon they can get back into the credit market.

What most consumers don’t understand is that credit scoring is a purely arbitrary analysis. The rules are controlled by each score provider.  They can change without notice or review. They are not a stable basis on which to make life decisions.

Hype about credit scores

In fact, the importantace of your credit score is largely manufactured by the companies that create credit scores.

Credit scoring is not regulated, objective, or transparent. It seems your score can suffer from having too much credit, too little credit, or even for astutely shopping for better interest rates on purchases.

Identity theft and the misuse of credit scores for employment and insurance purposes have heightened our awareness of credit reports and credit scores.

However, any legitimate concern is hyped by those who, having created the credit scoring “game” and cemented their lock on the rules of the game, then want to sell us services to protect us from damage to our scores.

Refocus on net worth

Let’s focus on our personal balance sheet, rather than our ability to acquire more debt, as a salutary exercise.

Let’s look at our savings, our preparation for retirement, the adequacy of our insurance protection as the measure of our financial health.

Let’s ask ourselves first how long it will take us to repay the debt we already have . What would we save if we weren’t paying interest on credit card debt? How are we fixed for old age?

Let’s learn to find our self worth in something other than the kind of credit card we carry or the credit score someone else assigns us

More

Credit scores improve after bankruptcy

Credit heals

Image courtesy of Flickr and Yoppy.