Good Credit Is Good Sense

May 5, 2020

Career / Business, Planning & Saving

“Who cares about my credit?” wondered 22-year-old Moishe Finkelman. His father had been urging him to take it easy with his credit cards. Rabbi Finkelman was a conservative person and didn’t go for the miles shtick Moishe was pulling to get free travel and perks. Although legal, his father knew that Moishe wasn’t organized enough to carefully roll over the charges so as not to accrue interest and fall behind. “Sooner or later, you’ll wrack up bills. When you don’t pay on time, your credit will be shot,” he warned. But the eager young man knew there was little the credit card companies could do even if he defaulted. He was enjoying exciting bein hazemanim trips with his friends courtesy of his credit cards, and if he ended up with a negative credit report, no big deal, he figured.

Good Credit Matters

Financial transactions are tracked by credit agencies that score borrowers on their repayment track records. Credit profiles may seem unimportant initially, but the ramifications of getting in over your financial head can be significant and long-lasting. Many young people grab whatever loans they can get approved for, enjoying free miles and unsecured debt with little thought for what happens if they can’t pay up. It’s easy then to fall behind, and into spiraling credit card debt.

Although there’s no collateral to seize, some credit card companies will still sometimes sue for nonpayment. But even without legal problems, earning a bad credit history can cause serious ramifications such as rejection for mortgages, increased car insurance rates, and even missing out on business or job opportunities. It is astute to approach debt with caution so as not to complicate future finances.

Borrowing Track Records

Even something simple like renting an apartment as a newlywed can become difficult for those with poor credit scores. Professional property managers run background checks on prospective tenants, and a low credit score is a bright-red flag. Obviously, someone with a poor credit history is more likely to pay late or skip their rent payments altogether. There’s also the perception that, beyond financial troubles, someone who doesn’t pay their bills is also someone who’s less likely to follow rules in general. The last thing a landlord wants is a tenant who thinks rules are for other people, and those with bad credit scores may face fewer and more costly housing options.

Credit can open or close doors

Nevertheless, renting may not be a huge problem even if one blows his credit, because many individual property owners may not care or know to review tenants’ credit scores. But banks considering whom to lend money to always do. Skipping out even on small bills can lead to serious restrictions on borrowing for a long time. Those with less than perfect credit will always pay more for mortgages, which may force him to shell out significantly more interest years down the line. Worse, he may not even qualify in the future for a home that his family will really need, just for being irresponsible while pursuing some paltry miles. And should Mr. Bad Credit open a business in the future, he may really regret blowing his credit on trivialities. Crucial business loans are very difficult to come by for those who’ve been irresponsible in the past.

Credit as a financial reputation

Other companies will be reluctant to do business with one that blew his credit, including utility companies providing gas, electricity, water, and even cell phone coverage. Those with poor track records of paying their bills can expect significant deposit requirements before gaining utility service. Basically, these companies don’t want to get stiffed, and they protect themselves by holding onto enough money that they will never be caught short. Although utilities aren’t as significant, money-wise as a mortgage, one should take pause from these companies’ hesitations about dealing with those who don’t pay their bills.

Clearly, a credit score isn’t just a static number; it’s actually an official accounting of financial reputation. Many view poor credit management as symptomatic of a general lack of responsibility and organization. For example, car insurance companies include credit scores as part of their underwriting; those with poor credit will typically pay higher rates. This perspective isn’t really fair, as unforeseen economic pressures can force even responsible people to delay or default on their bills. For this reason, it’s illegal in many states for employers to use low credit scores as a reason not to hire or promote someone.

Even jobs are affected

Even so, those with poor credit can be denied employment at jobs where having sound finances and economic management is pertinent. The jobs affected by this exception are many: basically, any that involve dealing with money, financial institutions, law enforcement, or clients’ private information. This means that some minor shenanigans can later block someone from many of the best employment opportunities in finance, accounting, real estate and management! Chazal often point out the importance and value of maintaining a shem tov, which in some ways seems to extend to good credit management as well.