Is Your Credit An Asset?

27 Mar Is Your Credit An Asset?

In America, “Thou shalt protect your credit rating” is the Eleventh Commandment. Some folks track their credit score the way cardiologiststrack blood pressure and cholesterol.

It’s true: Your Fico score is important. What you pay for credit will start – and sometimes end – with that one number, generated by the secretive math wizards at Fair Issac. A good number can save thousands over the course of a home or even car loan.

But like any asset, your “good credit” costs something to acquire and keep.

If you have minimal and manageable debt, then this is a cheap asset. It may only require a little tending to enjoy, like a well-placed and well-watered apple tree that blooms each Spring. Yet if you carry a lot of debt — but have a high Fico score — what are you paying to keep that tree alive?

Bankruptcy lawyers see potential clients every day who have astonishingly good scores – and can barely feed their family. In fact they are often feeding the family on credit while keeping up the minimum payments. They are usually well-meaning, organized middle class folks who know their good credit is an asset but they also know something is going wrong — and they have sought help. The conventional advice isn’t working so they’ve dared to think the unthinkable. They are normally only a small tip of the iceberg — most folks won’t seek the help they need because they don’t realize what’s happening.

The reality is you may have great “credit” but be close to max-ed out on what you can — or should ever — borrow. It’s a big clue your credit isn’t worth much any longer if you can’t get reasonable loans anymore. If you have to resort to payday lenders, your high credit rating is a boat that won’t float.

But even if you aren’t at that point yet, your credit may not be as valuable as you think. If you’re paying $350/month, mostly on the minimum credit card payments, then you are mostly paying $350/month for that good score. And you could well be doing so for years, possibly decades, to come.

What will you have in the end? A good credit rating! Now hop on in and drive it around the block. Oops, it doesn’t work that way. You paid for a car and got a good report card instead. Your mother would be proud. Maybe she can lend you a car?

For many people, eliminating the credit card debt in bankruptcy — even if it means bad credit for a couple years — is well worth the savings. If you budget carefully after bankruptcy, you should be able to save some money over the next few years to buy that car — and rebuild your credit along the way.

Now when you think it through that way, how much was your “good credit” worth? Drive it around and let me know.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2018 I am also serving on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com
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