Credit and Loans

In today’s economy and real estate market, the most important asset in securing a loan is good credit. But should it be? Does having good credit mean that you will make your payments on time and does having bad credit mean you won’t? Although one’s credit is definitely a good way of showing a person’s past actions, it may not be the best way of showing their future. I believe there needs to be less emphasis on credit ratings when it comes to loans. There are many items which can affect credit, and sometimes, they cannot be controlled. For instance, say you went to a medical institution for physical therapy. You paid your bill on time, every time. But, they say you owe them for a visit. They can attack your credit and you have no choice but to enter a dispute. This has a great negative effect on your credit rating. Furthermore, proving that you do not owe them any money can be extremely difficult. Now it might only be $200, but that can be the difference between a 10% and 7% loan rate.

Also, say you defaulted on a credit card 5 years and entered a rate reduction plan and have been paying your bill every month on time for the past 5 years. This still has an extremely detrimental effect on your rating. Personally, I think loan qualification should be based on more recent than past history and also, more on your income debt ratio. If you have $50,000 in the bank and you want a $20,000 loan, it shouldn’t matter what you did 5 years ago, as long as within the last 2 to 3 years you have been doing all the right things. I just think, as a society, we put too much emphasis on arbitrary numbers that are based on actions, which so nothing about how you carry yourself and your finances now.