“Credit scoring is a scam! So began a message I received recently after being on TV in the morning about why it is beneficial to understand your credit score. Uh-oh, I better prepare for a rant …
I am all for debating issues in good faith. But I suspect Mr. Annoyed, as I will call him, of willfully misunderstanding the context in which I was speaking. Man, it’s TV during the day. It is not possible to conduct an unrestricted assessment of the entire credit industry in five minutes between counseling on managing a stroke and teaching viewers how to dance the shimmy.
In such circumstances, I focus on providing the information most people need. We all have credit scores whether we like it or not. Finding out how to improve yours is inevitable, unless you want to live off the grid.
The high cost of housing today requires a mortgage at some point. Yet credit reference agencies, and by extension lenders, penalize first-time buyers for having a “thin” credit record – that is, no proof of past borrowing. So, most of us will need to take out credit in order to increase the chances of being accepted for a mortgage in the future.
The key phrase here is “whether we like it or not”. And I certainly don’t like it. On the one hand, it is not true that your savings and investments count for nothing. Common sense and fair judgment – once imparted by a local bank manager – are not always a given in the modern, impersonal world of credit.
I also know that credit can be like an opioid: addictive, used to hide bigger problems and often ruin lives that it is prescribed to improve. No financial reporter wants to be the equivalent of a doctor pushing pills. But that doesn’t mean paying attention to your credit score isn’t in your overall best interest. And this is not a weak collaboration with a corrupt system. It’s about facing the way things are.
People like Mr. Annoyed, however, argue that the idea of thin credit files is a cynical ploy designed to lure more people into the credit network, with all the data collection that goes with it. He must believe that in my stint on TV I made up my imaginary plumber, Abdul, who applies for a mortgage and gets turned down because he has a slim credit history. Abdul is very real, and telling him that the credit rating is a “scam” would do nothing to improve the frustrating situation he finds himself in.
Still, I don’t totally blame Mr. Annoyed for nurturing his theory. We have an all-powerful credit industry that has made borrowing money a big, complicated game, driven by secret processes, which claim to be fair but can cruelly trip us up. Seems familiar?
Anyone Who Has Watched The South Korean Blockbuster TV Series Squid game might see some truth in our own credit industry. The plot is about desperate debtors who find themselves competing in a series of children’s games in a remote complex, overseen by masked men who kill all the losers, thus reducing the number of participants until the final winner receives a huge cash prize.
Obviously, it is a fantastic dystopia. Still, there are some striking parallels to real-life credit gambling. Call it quiz game. Once you sign up, you can’t just run away from your creditors, or you will be punished. Failure is devastating and can be caused by naivety, loss of ball, bad luck, or even someone else’s mistake, such as a financial company suing you for debts you don’t owe.
And Quid Game may have some nasty surprises in store for you that are hard to guess because the whole game unfolds in such a mysterious and inexplicable way. Fortunately, Quid Game is much easier to win than Squid Game, if you play your cards right.
Take a credit card, use less than a quarter of the balance for one or two fixed expenses, and set up a direct debit right after each payday to pay off the entire balance each month. Make sure your income is stable and that your credit card isn’t allowing you to overspend. Do this for a year, plus pay all of your bills on time, and you’ll see a huge difference without paying a dime in interest.
Don’t pay to check your credit report or credit score. Cover all the bases using the free Credit Club services of Money Saving Expert, Clear Score, Credit Karma and TotallyMoney. LOQBOX can even help you build your credit score while saving money.
Play Quid Game well, and while you might not win millions, you will still be ahead and be able to make peace with the delicate world of modern money. Oh, and you’ll be a lot calmer than Mr. Annoyed.