Saturday, January 30, 2010

Credit Scores are a Sham: They are no longer that important

I am really tired of this whole credit score crap.

Your credit score only matters when you are going to borrow big money. And if you do qualify, then the lender will charge you whatever they damn well please. Basically, if you own property and have a credit card, you do not need to worry about your credit score, ever. Suze Orman is delusional.

Second, they way banks have stopped making loans, you probably could not get a loan anyway, so again, your credit score does not matter. Montgomery Burns and Warren Buffet would have trouble getting a loan right now.

Now, truth be told, lenders do look at credit scores, but income and cash flow are more crucial to loan repayment. Banks do not give a significantly better rate to people with better credit scores anymore. Instead, banks look at the credit score to justify how many extra fees, insurance premiums, and pre-payments they can squeeze out of you.

Your credit score does not affect you credit card rate either. Credit cards charge everyone 27% regardless of credit score. They have never waived a $39 fee because of a credit score. It has always been more important to generate income and cash than worry about a credit score. I paid my credit card late all the time and they never reported me. They were making too much money.

Now some of this stuff is personal. I got in to an argument with someone who was concerned about trying to preserve their credit score. And their mortgage was under water. I also had a run in with a collection agency who threaten to ruin my credit by reporting me to the credit agency. I laughed and told them I would pay off the debt on my terms, over several months and then have it removed. It addition I would add a comment that I was harassed and threaten by PCR, the collections agency.

So, what can you do....

1. When borrowing, shop around for a better rate. There are community loan programs and internet sites. Watch the application fees, they are also a sham. Only pay if their is a good chance of getting the loan.
2. Credit report issues can be corrected. If you have the income, then pay off the debts. Income and cash are more important than a credit score. I have been so crapped only by my credit card company that I paid of the balance.
3. If there are blemishes on you credit report, and you have the cash, you can pay them off. Plus you can write a reason for the debt in you credit report that must be reviewed by the bank or lending officer.
4. Pay cash and save some money. I pay cash or use my debit card a lot. I have also started to save some small amounts of money. We are returning to the days of hard credit, savings and investments.

So, the credit score really doesn't mean that much any more. Lenders will charge what they damn well please. The score is really just a big fraud put on the middle class to squeeze more money from them.

By the way, nothing personal against Suze Orman. I love her meassage of female financial empowerment, but she is still delusional.

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