Monday, August 11, 2014

Unexploited Finances: FICO Score Changes. The Good, The Bad, and The Ugly

There are a lot of articles being published on the recently announced changes in the FICO score calculations.

You can read more about it here and here.

My thoughts...

The Good

The lessons borrowers learned from prior debt experiences can now be used!

Individuals who were denied credit, or only provided credit with higher interest rates, based on prior payment issues (debt sent to collections) will be able to receive loans!

Your prior credit history of debt in collections will no longer be included in your credit score calculations.

Businesses (credit card companies and auto dealerships) and banks will be able to loan more money, adding profits into the American economy.

Employment increases.

The Bad

Individuals who have not learned lessons from their past debt problems will be able to take on more credit.

Having bad personal money practices, these individuals run the risk of taking on too much debt, not making enough money to pay off the debt (especially if a major cash issue comes up, like an unplanned medical payment), and needing to be bailed out (bankruptcy, partial blame of the housing bubble burst).

Businesses and banks, quick to issue credit, will find themselves with individuals unable to pay back the money.

The Ugly

Millions of individuals take advantage of the loosened score calculations, take on credit.

Thousands of businesses take advantage of the loosened score calculations, issue credit.

Individuals take on too much debt.

Individuals pay back too little of the money.

Individuals default on their loans.

Businesses miss expected earnings.

A bubble bursts...multiple bubbles burst...

Employment decreases.

Consumerism gone too far.  Again.


"Those who cannot remember the past are condemned to repeat it." (George Santayana)

I hope this change helps individuals who were put in tough (past) situations.  We all go through financial difficulties and (I personally) would not want to be judged on these situations.

I would encourage anyone who is considering consumer debt (including mortgages and car loans) to work on their personal financial situation before taking on any credit.

Make more than you spend.
Save for rainy days.
Save for security and comfort. (retirement)
Save for priorities.

Use the Four Steps for Exploiting Your Finances (Step 1, Step 2, Step 3, Step 4).

Yours in exploiting life!

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