If you have bad credit, remember this one thing: bad credit is not the problem.
Bad credit is simply a symptom, and a result, of the real problem, which is usually your bad behavior with money.
Before spending massive amounts of efforts, anguish, and time, cleaning up your credit, spend meaningful time changing your thinking and your philosophy about money. Then your behavior that caused your bad credit will change, and you will have properly addressed the real issue.
Check out the video at the end of this blog post to see How Using Cash Actually Changes Your Spending Behavior
Money is honestly not that complicated, but we have a tendency to feverishly overcomplicate it.
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It’s important to reflect on how you were taught about money and how that plays in to what you think about money. What is your philosophy about money, consumerism, and spending?
Once you determine some of these basics about how you think about money, then you can begin to look at your credit, which is simply a result of your thoughts about money.
We've all seen people make poor decisions with money, fix their credit, and turn right back around 10 years later, and be right back in a worse mess financially. That happens because we have a tendency to attack the credit while ignoring the real underlying issues.
For most of us, our credit is the least of our worries. If you change your attitude and behavior with money, your credit score will get better, but if you ignore the behavior and work on the credit score only, you will lose over and over again.
Sounds simple, but this mis-directed approach happens all the time. The focus should be on changing how we view money, which will lead to alterations in the behavior, and ultimately, as these things take shape, the credit score will likely rise on its own.
Let’s clear something up:
A good credit score, in its simplest definition, means you borrow money and you pay it back. A good credit score doesn’t mean you are a good person, a nice person, a loving person, or a righteous person. It's simply a measure of how well, or how poorly, you use credit, or pay debt.
You are not a horrible person if you have a low credit score and the bank won’t give you a loan.
I realize that banks tend to want to tie your quality as an individual to your credit score, and we follow suit by looking down on people with bad scores. Or worse, we look down on ourselves if we have bad credit.
Don’t go there
Unfortunately, people have a tendency to equate being able to purchase an item “on credit” with status, self-worth, prestige, and stature. Save yourself that misery and realize this:
Credit is a lending institutions view of your ability to pay them back their money that they loaned to you based a number of factors that go beyond the scope of this blog post. Your circumstances, life problems, life issues, mistakes in the past, and future greatness, is never taken into consideration when figuring your credit score.
To be clear, I'm not telling you to ignore your credit score, or that your credit score is not important. It is very important to pay what you owe, and pay it on time and in full.
For the sake of integrity and character, and doing what's right, you should have good credit based on a history of paying what you owe. So, is there some validity to credit scores, yes. However, are they the determining factor in who you are, NO!
Your credit score is not a measure of your integrity, but a measure of whether or not you made good decisions in the past with money. Too many of us, as Dave Ramsey says, "worship at the alar of the credit bureaus". I see this a lot.
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The credit bureaus are not God, so don’t treat them like they are God.They can only judge you based on the past. We have to get away from this idea that our identity is our credit score. It's not.
Is it good to clean up your credit? Absolutely, yes it is. But don't clean up your credit until you clean up your thoughts about money, and at the same time, keep the credit score in perspective.
Take credit scores for what they are.
Image rights reserved for National Credit Federation
Think about it, you only need good credit to buy more stuff on credit. Sure, nowadays insurance companies and jobs will look more closely at your credit.
But, there is no other real need for credit, other than to show and prove to banks, insurance firms, and lending institutions that you are of low risk to them, and you are worthy of them giving you more credit so that you can now go and buy more stuff, using more credit!
It’s a cycle and you get thrown right in the middle of it as the primary engine that keeps the system churning.
We talked about changing your thinking, now lets talk behavior. There are 2 behaviors that you must change today, before you worry about your credit score:
1. Stop borrowing money and pay cash. if you don’t have it in cash, don’t buy it. Sounds simple, but the small things make the biggest difference. This is a mindset that effects and directs your behavior. If you control the part of your brain that handles transactions with cash, it changes your behavior with money.
This one step alone will combat a spending culture that has a death grip on many of us that makes us think we deserve stuff just for breathing and being over a certain age. That is the type of mindset that will have you flat broke with low credit scores.
It's ok to practice some patience, save up for it, and purchase it when you have cash in your pocket, or a debit card. And no, you don't have to have alot of positive credit to buy a house.
Have a sizeable down payment, the right incomes, target a house you can easily afford based on the right ratios, and underwriting departments at lending institutions will make a way.
Check out the video at the end of this blog post to see
How Using Cash Actually Changes Your Spending Behavior
No, I'm not saying you can buy a house with BAD credit. I'm saying you don't need loads of positive credit to buy a house, if you have other variables taken care of.
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2. Take complete control of your money by telling your dollars what to do, when to do, how to do, and where to do. You put your money where you want it to go, not where it tells you it wants to go. Develop a budget, plan it out, and stick to it no matter what. BE IN CONTROL.
Hold your money accountable to you. One way to take complete control of your money is to focus intently on getting out of debt. This frees up money, and gives you charge over your finances!
The bottom line is this: Fix your mindset, fix your behavior, and then consider fixing your credit. It is altogether likely that once you fix your thinking and behavior with money, the credit will fix itself.
Click HERE for 5 Frugal Habits Anyone Can Learn
After you change how you think, how you feel about money, and how you behave, then you can confidently work on cleaning up your credit score. But don’t clean it to use it. Instead, clean it as a responsible act as an adult who cares about your name and your financial reputation.
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