I have to give Suze Orman credit.
One thing that’s taken a huge hit in the housing crisis is people’s credit scores. I’ve seen it with plenty of good responsible homeowners.
The reality is that most people who overextended themselves during this financial crisis did so because they had good credit scores.
In fact when I used to ask people in a seminar who had bad credit prior to the financial meltdown no one would raise their hand.
In fact it was only people who had good credit that got themselves in trouble.
The way you build your credit seems antiquated and doesn’t always reward you for being good with your money. If you try to live frugally, use only debit cards and curtail your borrowing, you should be rewarded.
Yet someone who lives beyond their means, yet pays the minimum on their cards, will in fact end up with a better credit score, even if you’re on the verge on bankruptcy.
This goes right to the root of the problem, where we preach the benefits of spending wisely, yet reward people for living on borrowed money. It’s entirely counterproductive to the financial recovery of this nation.
Orman and I agree that people should be rewarded not for how much money they borrow and repay but for how much money they spend without using credit in the first place.
Orman realizes this and is trying to do something about it.
She’s begun offering a pre-paid debit card called “The Approved Card”, and she’s managed to convince at least one of the credit rating agencies (Transunion) to watch the spending habits of people using it. She hopes that TransUnion will ultimately decide to use this information to help adjust a person’s credit score.
Right now TransUnion is only monitoring the data, and they are not putting it on people’s credit scores — yet.
“TransUnion is committed to supporting Suze’s efforts to understand the impact of pre-paid card use on an individual’s credit health,” a company spokesman told the Chicago Tribune, “Our goal is to help Suze understand whether including this data in a consumer’s credit report would impact access to credit products.”
A person’s credit score can ultimately have a tremendous impact not only on an individual’s finances but also on our entire American psyche of living beyond our means. For generations it has been okay for our economy to continue to grow on borrowed money.
It’s why too many people got mortgages they couldn’t afford, and it’s part of the reason we’re in the mess were in now.
Thus, I think all the credit agencies as well as various agencies in the government should consider transcending the norms of how credit scores are determined and maybe not allowing FICO, which is a private company, to dictate what is in their best interest and not necessarily the best interest of our families and our country.