Do you agree that the credit score system is very flawed?
Post date: June 6th, 2011the credit score system is now used to judge personal character instead of financial management. I often hear some companies say, "your credit score tells what kind of character and morals you have" Credit score checks are used to decide if person should be hired or not, even though the job has nothing to do with finances. A lot of bad loans were issued to people who could not pay mortgages, and the lender ignored their bad credit. Also your income is not even considered a part of your credit score. You can be poor and still have excellent credit and you can be very rich but still have poor credit. The amount of income should be big factor in credit score. For example if you make more than double the median income, i.e. beyond K an year then your credit score should increase. And if your job is minimum wage, your credit score should decline. If you pay off an entire loan for car or mortgage, your credit score still goes down. If you close a credit card, your credit score goes down even though closing credit card is a good thing because it makes you debt free. Clearly the credit score system is very flawed. You only have good credit score if you have revolving debt — that is you keep paying the debt regularly but are never 100% debt free. If you keep paying your full balance each month, credit card companies don’t like you and do not send good report when they report to credit bureau. But if you keep paying minimum balance always or little over minimum, credit card companies send favorable report when they report to credit bureau and your score actually goes higher.
also often people tell you, "you should take loans and credit cards, because that will build a good credit for you".
also i have heard, "loan and credit card is excellent opportunity to build good credit"
if you are always debt free and never took any loan or credit card, you are categorized as risky borrower, and you would be denied any kind of loan or card.
also another very big flaw: you file bankruptcy and your credit score is destroyed. However, you become debt free which is a very good thing. Being debt free itself should INCREASE your credit score.
peanut butter: why isn’t income a part of your credit score? is it okay to have minimum wage worker with 800+ credit score and a person with 0,000+ income a credit score of 400? Income determines how likely you are to pay your debt. Why is it irrelevant in credit score?
peanut butter: if your income is 0, how long would it be before you fall into delinquincy? your credit is good directly because of your income. no income or little income is why people can’t pay their debts and they default
June 6th, 2011 at 5:10 pm
i am against credit score system being used for employment purposes. Using credit for employment means tying your credit to your personal character. This just shows society believes "credit is your character". NOT
June 6th, 2011 at 5:10 pm
TLDR
June 6th, 2011 at 5:10 pm
My credit score is 0. I pay cash for everything and if I don’t have the money to buy it then I don’t buy it. My house is paid off. Hasn’t been a problem for me.
June 6th, 2011 at 5:10 pm
yes; I still do not understand how someone is supposed to get out of debt if they cannot get a decent job due to their credit score
Wait; I do not think that our economic system would work if everyone was able to get out of debt…
June 6th, 2011 at 5:10 pm
PAul G Head of YA team shi-itbirds WHiteeySCUM
June 6th, 2011 at 5:10 pm
it’s designed,as many things,to ultimately control access to opportunities
June 6th, 2011 at 5:10 pm
it’s ridicules. As a matter of fact if our credit score reflects on our character and morals,doesn’t it mean our government and all the bank/auto bailouts should be poor rating. They sure the hell got good interest rates now didn’t they. debt ratio to income? well then the united states score would be about 400. banks… didn’t fanny mae get a bailout, what’s their score? The very people that made up this score have bad credit, go figure!
June 6th, 2011 at 5:10 pm
The only thing that a credit score determines is how likely you are to pay your bills.
Your credit score is partially determined by the amount you owe divided by the amount of credit available to you. The lower the resulting fraction, the higher your credit score. This is why, for example, closing a credit card actually lowers your credit score. Paying off your credit cards in full every month has a beneficial effect, though.
Ironically enough, though, opening a new credit card or taking out a new loan lowers your credit score, albeit only temporarily.
Filing for bankruptcy means that you are not able to manage your credit appropriately. Your credit score should be extremely low after filing for bankruptcy, because you have shown that you are unlikely to pay off your debts.
If you have never had a credit card or loan, you have no credit history, and a bank has no way of knowing whether or not you will pay your bills. Establishing credit with a low-limit credit card or a student loan is the only way that you will be able to show that you will pay off larger amounts, like a car loan or a mortgage. This is reasonable. You don’t give a car to someone who does not have a drivers license.
It is not only the bank’s fault if someone defaults on their loan because they borrowed more money than they could afford to pay off. The bank should’ve checked, but so should’ve the borrower. If someone is willing to borrow more money than they can afford to pay off, then they are a credit risk, and should be treated as one.
I don’t make a lot of money, but I have excellent credit, because I always pay my debts. Meanwhile, the people who lived down the street made more money than me, but they decided that they would rather abandon their obligation to pay their mortgage than try to sell their house in a poor market.
That says a lot about my character compared to theirs. I have a car loan that I’d rather not have. And, for awhile, I owed more on the loan than my car was worth. Rather than saying, "Screw it, I don’t want the payments and would rather own an older car outright," I made sacrifices in order to make the loan payments because I have integrity. It’s not the bank’s fault that I decided to buy a new car when I should have bought a used one. I made a mistake and it’s no one’s fault but mine.
ETA:
Income does not determine how likely you are to pay your debt. It determines how much debt you can afford to pay off, but someone who uses credit responsibly will never borrow more than they can afford to pay off, regardless of income.
I wouldn’t fall into delinquency. In addition to skipping luxuries to pay off my debt, I also skip luxuries in order to save money. I have enough money in savings that I could pay my bills for a year or so with no income. And it’s really unlikely that I would have no income for an extended period of time. Even if I lost my job, there are plenty of part-time minimum wage jobs out there. I’d rather scrub toilets at 4am every day than default on a loan.