by John G. Merna
No Borrowing Power Equals No Credit. Think About It.
Not a week goes by that I don’t speak to a person, say from Virginia Beach, Newport News or another local city, who is stressed by their finances and investigating a bankruptcy fresh start who says “But I don’t want to file bankruptcy and ruin my credit.”
Most of the time I will ask about the comment and their credit only to find out that they are unable to pay their bills and haven’t for a long time.
“What credit?” I respond with surprise. “Your score is in the toilet if you haven’t been paying your bills. What credit are you protecting?”
In some cases the client, maybe from Chesapeake or Norfolk, advises they are current on their debt and have a “good” score. But upon further investigation I find they are paying enormous minimum monthly payments, sometimes as much as $500 to $1000, and are maxed out on their credit limits. Regardless of their large monthly payments their balances do not shrink. It is like they are throwing money down a well. And on top of the draining monthly payments and maxed credit lines they are unable to qualify for any additional credit. They are often robbing Peter to pay Paul. Unfortunately, Peter is the monthly necessities and Paul is the never-shrinking credit card balances. Sometimes it is worse and Peter is their retirement 401(k) and they are robbing it to pay their credit card debt.
Once again, my response is “What credit?” They are not protecting any credit. It is just an ILLUSION. And there are a lot of people in Hampton Roads holding on to this illusion.
We have been so indoctrinated into thinking that the “good” or “bad” used in describing our credit rating actually applies to our character. We are frightened of being “bad” people. Well, bad credit doesn’t make us bad people any more than good credit makes us good people.
The question we should be asking ourselves personally is “What value does our credit have to us?”
Stay tuned for tomorrows blog where this and other questions are answered.