Financial Tips | Debt Management

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1/14/08

Is the Credit Rating System Fair?

The main reason that the credit rating system is fair is because each person controls his/her own credit rating. Your borrowing and payment habits are what dictate your credit rating. If you abuse your credit, your credit rating reflects the same. However, if you are a responsible credit user, your credit rating will be favorable.

Lenders need a system that can help them determine whether a person is a borrowing risk. By using the current credit rating system, lenders have some kind of barometer for measuring credit risk. Without such a system, obtaining a loan would be extremely difficult because lenders would require, among other things, years of financial records to help determine the potential borrower's creditworthiness. Our current credit rating system conveniently compiles all of a person's financial records and uses them to create a nice, neat number that lenders use to make lending decisions.

The people that complain most about our credit rating system are the people that have low credit scores. These people claim that their low credit scores are somehow not their fault. These people claim that the credit card companies kept sending them more and more credit, and that they just "had" to use this additional credit. Are these people serious? We reap what we sow. It is amazing to me that a person can abuse their credit privileges, and then complain about the penalties that are assessed as a result of their abuse. These complainers are proof that the system is fair and is effectively working. If the credit rating system was unfair, these credit abusers could continue to take advantage of their credit privileges to the detriment of responsible credit users.

Another common complaint that people make is that they have no credit score before they apply for credit. The argument that these people make is that they have never had debt, therefore, they should have a high credit score. How does this make sense? A credit score measures a person's creditworthiness. Therefore, how can one have a credit score without first having credit? This is not a hard concept to understand.

The system is not perfect, but it is fair. I have had my credit score reduced due to negative information being placed in my credit file that was not mine. I had to get the information removed by contacting the credit bureaus. I would be lying if I said that the information was immediately removed. In fact, it took a couple of months to get the information removed. I was not happy, but mistakes happen. If the system was perfect, there would be no complaints.

The point is, the system is as fair as it can be. If you feel that the credit rating system is unfair or unreliable, pay cash for everything. If you cannot afford to pay cash for everything, stop complaining about the system and use the system to your advantage. If you use your credit responsibly, you will have nothing to worry about.


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