Do Credit Scores Really Matter Anymore?
July 13, 2010 by christine
A friend of mine sent me this blog post from Naked Capitalism. Yves, the writer, wrote an excellent post about strategic default. It’s clear to me that people are fascinated by this topic. On Saturday, my channel on YouTube had a record-breaking number of views, of which a large percentage were people looking my video “Three Steps to Prepare for Strategic Default.”
Yves also commented on the issue of credit scores. I also saw an article on MSNBC last night that says Americans’ credit scores are at all time lows. Is anyone surprised?
“Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.”
I don’t think FICO or any other scoring method is even relevant anymore. And really, who cares if the bank’s lending guidelines are tightened? Nobody wants what they’re selling right now anyway, even if they could qualify for it.
I personally think people are trying to get out of debt. And, if you’re anything like me, the last thing I want is to get back into debt. I learned a tough, painful lesson in bankruptcy and I’ll never get myself into another situation like that again.
What’s even more shocking is how the financial industry wants to get you back in debt after you’ve filed bankruptcy all in the name of raising your credit score.
Several people tell me that getting a car loan (at 25% interest) is the fastest way to “rebuild my credit.” This is precisely the reason I haven’t bought another car — I don’t want to pay 25% interest. I’d rather continue to share a car with my mom or buy a beater for cash until I can afford to buy what I want.
The financial industry is in a dream world if they think they aren’t headed for a major disaster. The housing mess has soured many Americans on them. And it’s not like any of them are loaning money anyway.
Aside from that, this housing mess is a major game changer for the financial industry. I don’t see how FICO is even relevant anymore. Its scoring model doesn’t distinguish between people who can pay and who can’t, which, to me is a major issue with respect to the foreclosure mess. If you lose your job and can’t pay your bills, your credit is trashed anyway — it’s completely out of your control!
The threat of losing a high credit score is not enough to keep people from walking away. The lower income people don’t have a choice; the rich have other assets they can rely on.
What do you think? Post your comments below!
Contact me at Christine@desertedgelegal.com
DISCLAIMER:
****CHRISTINE SPRINGER IS NOT A LICENSED ATTORNEY. THIS BLOG IS COMPRISED OF HER OPINIONS, OBSERVATIONS AND INTERPRETATIONS AND IS NOT INTENDED TO BE CONSTRUED AS LEGAL ADVICE. PLEASE CONSULT WITH AN ATTORNEY BEFORE RELYING ON OR TAKING ANY ACTION BASED ON THE INFORMATION IN THIS BLOG.****
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I've got 2 paid for beaters now.
Christine, thank goodness there's at least one person telling it like it is, no holds barred. I refer as many people here as I can. I hope they read, and act.
Here Here Andwoo in regards to Christine's stand,
Credit Scores? HA…Thanks BIG GOVT…I will survive w/o the help of the BANKS.
No Credit Cards here…Just a FRAUDULENT MORTGAGE.
Christine,
I completely agree that FICO is simply not relevant anymore, its a number that can easily be artifically manipulated simply by learning how its created. A car at 25% is a easy way to rebuild credit, but not one I would advocate to anyone due to the high cost. There are simpler and relatively free ways to rebuild credit after BK or any 'bad thing' happening.
Josh and I had an interesting discussion about this last night. I don't think FICO will remain relevant at all. I think the banks will have to change. Josh says he thinks consumers will still go for consumer goods at high interest rates because of their bad credit and the banking industry will remain the same. I guess we'll see. I could care less about rebuilding my credit at this point, because, at least for me, I'd rather force myself to pay cash for things rather than live beyond my means. I learned this the hard way — and I don't know if others will think the same way or not, but I'm not being a profit source for the financial industry. If we want to end the BS on Wall Street, we should stop using credit cards and pay cash for things again like it used to be years ago. Then we wouldn't get into debt because we couldn't buy things we can't afford. People would be forced to save money to buy the things they want.
Now THAT was funny! I don't have credit cards or a mortgage anymore. And I can't tell you how happy I am to be free of those burdens. Never again!
Thanks Andwoo! I really appreciate the comments!
We don't have a beater yet. We have a 2007 Hyundai Accent that I bought for my mom when I had stellar credit. It looks kind of funny driving around Scottsdale with all the BMW's, Land Rovers and Mercedes, but I don't care. The car is 2/3 paid off and is still in excellent condition. It turned out to be the best purchase I made in the past couple of years and I'm thankful for it.
I'm also thinking about a scooter to ride around Scottsdale in the fall/winter. Even cheaper than a car and good gas mileage.
Get rid of the Credit Cards…PAY CASH ONLY…Live w/in your means and forget about credit…
ALL the banks are gonna ramp up the foreclosures shortly. Pssssst…Wall St. is hiring while all other industry sectors are hurting…Hmmmm…wonder why?
Do you think THEY, the BANKS will ever care about your CREDIT? NOT…THEY can't even get HAMP, HOPE, HARP…moving, what makes anyone think THEY care about US at all…FRAUD
FHA announces new policy changes regarding FICO score requirements for their 3.5% down program.You must now have a minimum score of 580. Does anyone know if this is a move up or down in terms of credit score requirements?
Source: http://www.fha.com/fha_article.cfm?id=151
Get rid of credit cards! (I agree.)
While I agree that many banks created fradulent mortgages then turned around and made
up companies in order to circumvent the process of creating and recording legal chain
of title. I also agree that people need to start living within their means. HOWEVER,
credit cards do not force people to live outside their means. Just because a consumer
is given a credit card does not mean they should use that credit card to finance
things that they can't afford.
Credit Cards are a tool one that can be used wisely and help a consumer or Credit
Cards can be abused by the consumer. Do the rates and fees charged on credit cards
border predatory – sometimes. But no one is holding a gun or any other item against
that consumer telling them to max our their credit cards.
Banks are not faultless but as far as credit cards go consumers should take some of
the blame. I am actually creating a corporation that is moving completely away from
the credit scoring model. It is ineffective, out of date, abs easily manipulated
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