Once upon a time anyone with a pulse could get a credit card. ANYBODY. Or anything. There were news stories about credit companies mailing credit cards to people’s dogs, and to infants, and to deceased people.
As homes soared in value, people were able to take out easy home equity lines of credit as well.
People bought gigantic television sets with this easy credit, and jet skis, and yachts, and expensive cars and motorcycles, and lavish vacations, and designer wardrobes, and Rolexes.
In other words they bought expensive toys on credit, back when money was flowing freely and interest rates were reasonable.
Now banks are facing record numbers of loan defaults. As people lose their jobs or their spouses lose their jobs or they face pay cuts, they can not pay off their credit card bills or home equity lines of credit.
Easy credit, and the banks, were not their friends. They were a trap that led these people to believe they could spend and spend without consequence.
When people can not make their payments on times this is reported to the credit agencies, and scores plummet. Then, when people want to take out loans for things which really are necessities – a car or truck, a home loan, a student loan – it is near impossible to do so.
A bad credit score also makes it difficult to refinance and get lower interest rates on existing loans.
The fact that it is now difficult for many people to get easy credit is not necessarily a bad thing. It means that people need to save up and pay for things in cash, or not buy things that they can’t afford.
So by all means work on improving your credit score, but don’t make it your goal to get new lines of credit and increase the amount you can borrow. Instead, think of how much trouble easy credit has caused for you and for many others in the past, and make it a goal to live within your means and delay purchases, and to use as little credit as possible.
