Credit Ratings: Who Do They Really Protect?

Question: What does your credit rating REALLY reveal about your character or trustworthiness? When should or shouldn't it be used to rate you and why?

Scenario: Mr. Smith came from a poor, workingclass family whose parents both worked just enough to put food on the table. He makes average grades in school and applies for as many scholarships as he can, but college is still expensive; especially on his fast food cashier's salary. Now that he's 18, the credit card companies are all over campus and in his mail box promising him a brighter future. His parents raised him to work for everything in life and yet he caves and gets 3 new cards to help pay for college tuition and books. He cuts the cards up vowing never to use them again.

It is now 4 years later and Mr. Smith finally has a degree and starts paying off the bills he's been behind on for 4 years. His credit isn't doing too well, but it could be much worse. Now that one of the cards is paid off again, he uses it to furnish the new apartment he and his girlfriend just bought. The couch, the bed, the diningroom table, it all goes on plastic because his new job is sure to help pay the bills.

4 years later and Mr. Smith is further in the hole. He now has a car with a horrible interest rate not to mention the over-priced insurance. College loans are coming in from Sallie Mae and the 40 hours a week just isn't paying everything. His girlfriend is now his wife and with a baby on the way, she can only work part time. They've talked about getting a bigger house but know it's impossible. The downward spiral of debt has captured another victim. Any time he tries to get a loan, or open a new account or even get a better job, Mr. Smith will be treated like a criminal now. All because his income couldn't keep up with his life.

Thoughts: The sad thing is, most Americans who have horrible credit ratings are the lower-middle working class. The people who go to work every day trying to put food on the table and a roof over their heads. The two largest life-changes which affect one's credit rating are college and marriage/divorce. Common life choices which cost one many thousands of dollars involve investing or withdrawing loans over one's income in order to achieve a higher market value or better job which will, hopefully, help you catch up and pay off your debts. They live in fear, unable to save for retirement or risk taking time off work. Many of these people find themselves denied the many money-saving techniques reserved for people who already have perfect credit. For example, lower intrest rates on everything from vehicles to housing. And now, many higher-level jobs require credit checks to assert an employee's "trustworthiness" even if they are not handling cash or working in a finacial department.

Scenario 2: Let's pretend for a moment that Mr. Smith grew up in an affluent family with two working parents who paid for everything he wanted and more. He had more free time to study because he didn't have to work. he got straight A's in school, was class valedictorian and was offered several scholarships. His parents paid for everything else so that he could attend the best University and not have to work during college. They even give him two credit cards in his name which they make sure to have their accountant pay off in full at the end of each month. He never recieves the bills for his spending or his cell phone or his car insurance.

4 years later Mr. Smith has no work experience, but he has a degree from a renowned school and easily lands the dream job his education afforded him. He uses his new wealth to buy a better car and a nice house with wonderful new furniture. Thanks to low interest rates and a high paying job, Mr. Smith has no problem paying off all of the bills on time and maintaining the perfect credit score his parents built for him.

Another 4 years later finds Mr. Smith comfotably contributing to his 401k and setting aside a nice College tuition fund should his children decide to attend school overseas. He has hired a personal accountant to make sure he saves the most money as possible therefore solidifying a future for his children.

Thoughts: Some people just get a better start in life than others. But why is it that the credit score system is designed to keep the rich, rich and the poor, poor? The way things are now, people whose parents teach them no responsibility and allow their children to waste extreme amounts of money on frivilous needs like brand clothing and electronic trinkets are not raising "responsible" adults. However, according to their credit ratings, they are deemed "more responsible" than someone who worked for their entire life to earn and pay for everyhing they have.

The two most disgusting abuses of this Credit Rating system is when it is used to deny someone employment or housing. Unless and employee works in a bank giving loans to others, I cannot see how their credit rating truly reveals anything about their character. The same goes for housing. I've heard the reply that "allowing people with bad credit to live here would invite more criminals to the neighborhood." The fallacy in that statement is that a sucessful criminal like a rich pimp or a drug dealer could afford to build good credit. What people fail to realize is that credit ratings do not show a person's responsibility level. All it really shows is their disposable income.

Closing: Credit Rating Systems were designed to protect investors from lending money or mobile property (like a boat or a car) to someone who cannot afford to reimburse them for said loan. This is completely understandable. If you are trying to get a bank loan or a new car, then whether or not you CAN have it should be up to your credit score. If one would like to take the risk of going outside their current income in hopes of better income (new business startup or college loans) then they should know the risk AND get charged a higher rate or downpayment based on Credit Ratings. I understand this.

However, I do not believe that one's employment nor one's home purchase should be based on their credit history. These two facets of your life are not only necessary for survival but they are also wholly unrelated to your ability to repay on a debt. Employment is allowing one to earn income. Denying people better jobs based on their credit merely ensures that the rich get the best jobs, not that the "most responsible" people do. If Paris Hilton teaches the world anything, it should be that perfect credit does NOT equal perfect employee. As for housing: that's why the word EVICTION exists. If the property loaned is not mobile, then it should not be based on credit.