In today’s financial environment, the national banks are in a dire state. If the bailouts of 2008-2009, the sudden rise in unemployment, and the collapse of GM and Chrysler didn’t make that clear, the upcoming tight credit will.

Current Credit Conditions.

Actually, credit is already tight. For many businesses, homeowners, and credit card customers, the national banks have made it a point to lower credit lines, increase minimum payments, and even cancel accounts. This is all to bring their balance sheets in line with the reality of the current credit conditions.

This will all take time. There were a lot of loans to a lot businesses, people, and even governments out there and some will never be repaid. A lot of this was facilitated by credit reporting agencies. It was Standard & Poor’s, Moody’s, and Fitch’s ratings that gave too many businesses and governments top-notch credit ratings. It was Experian, Equifax, and TransUnion that did the same for the homeowner or the credit card customer.

The standard for business and government was the bond rating. For you and I, it is the credit score. Just as bond ratings must adjust to the reality of the current credit market, so too must the credit score.

Is A Credit Score All Important?

Too many consider a credit score as a standard of their self-worth and standing in the community. While the credit reporting agencies and the banks certainly encourage this kind of thinking, it is merely a means to go into debt. It is not a measure of your ability to repay debt or even to have access to debt in the future. It is a snapshot, of a moment in time.

A credit score is not a measure of character. It does not consider your friends, family, roots in the community, nor your contributions to your neighborhood. The credit score reflects credit conditions in the country as a whole, and that is entirely beyond your control.

With national banks and credit reporting agencies, you are in a situation where local considerations are unimportant to the lending decision. All that matters is what happens in New York City, on Wall Street. Or, if the Federal Reserve decides to change the credit market this week.

For instance, you could have a credit score that would get you a mortgage one month. If the Federal Reserve decides to change lending requirements or the market for loans dries up on Wall Street, you may not get a mortgage. This could happen despite nothing having changed on your application or in your local community!

Local Credit and National Credit.

To limit the effects of being entirely dependent on a good credit score, it is best to develop relationships with creditors in your community. Often, you may find they do not report to the credit reporting agencies. Under these circumstances, it is possible that credit scores are not the deciding factor for extending you credit or getting a loan. Let’s call this local credit.

On the other hand, banks, finance companies, mortgage companies that depend on Wall Street to buy their loans, notes, and accounts rely almost exclusively on the credit scores provided by FICO and the credit reporting agencies. You will need to stay vigilant about disputing, challenging, and validating anything they report on you. Since society depends on credit from the national corporations to function. Let’s call this national credit.

Your Place In Society.

In this modern, financial society, many believe your credibility is determined by your ability to borrow, your access to credit, which is really how much you can go into debt. If you want to maintain this access, don’t limit yourself to just national credit. Local credit becomes useful when it becomes difficult to borrow from national banks, mortgage companies, and national corporations.

For a more secure and stable financial future, don’t neglect all your credit options, which includes using local credit. Develop relationships with those who can extend that credit, so you won’t have to depend solely on your credit score to determine your worth in society.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.