In the banking industry, the credit report / credit profile is often referred to as the “character report.” The credit/character report does not determine if a person has “good” or “bad” credit, as much as it helps illustrate a financial picture of a person’s consistency to uphold to their financial responsibility. The credit report answers questions like… does a person pay their financial obligations each month within 30 days? …How many times over the last two years has this person been more than 30 days late on those obligations?… Does a credit holder rely on the bank’s money more to manage their own money by carrying balances beyond their monthly and yearly earning potential? The answers to these lines of question help a creditor determine the risk of offering credit/money to a person and assess the likelihood of timely installment payments until the debt is repaid. That risk is expressed in the form of the credits interest rate.
Does a low credit score translate to a financial deadbeat? Absolutely not, I have known some really great people that have experienced “bad” credit situations, but not because they were “bad” people. In fact, after my father’s death, I became very detached from my finances (and other responsibilities) as I dealt with my loss. Although death isn’t an excuse to mentally checkout on finances, my actions became a sign of a potential credit risk I could become should I fall victim to my emotions again. I was traveling with a friend in the city when he received a parking ticket. As soon as he pulled the ticket from his windshield, he drove to the address on the citation and paid the fine. Out of curiosity, I asked him his credit scores and he quickly responded 814. Both the actions of paying the ticket immediately and knowing his exact score are the characteristic traits of an 800+ credit score person. Equally, the characteristic traits of the person that pays the “minimum due” each month and carries high credit card balances, typically carries a 600+ credit score. These character traits may walk on the edge of risky for one person and may be perfectly normal to another, but the manner of attention given to one’s financial obligations are the only concern of the creditors.
No one is necessarily bad or good because of the way they address financial obligations, but the everyday decisions that make up who they “are” as a person, exemplify what the character report will reveal towards those obligations. Improving one’s credit score is as much about managing money as it is about managing one’s personality and mental whims.