This website contains affiliate links and sponsored posts. A small commission is earned when you click and purchase via my affiliate links. Do Credit Scores Matter?
Man, I must be getting old because I’m going to tell you a story about the last recession I went through as an advisor. During this recession, clients had to make choices between their credit score and their financial weight. Let me paint a picture for you…
Here in San Diego, if you owned a home, you were probably upside down on this home. Everyone was sold a bill of goods. I remember, as a young advisor, I was at a real estate function, and some old guy stood up in the meeting and said the following words:
“I have lived in San Diego for 45 years, and I have never seen a downturn in the market!”
Wait, What? I mean, I heard that, but I just didn’t really believe it. Of course, I went back to the office and asked one of the senior advisors, and he said that it was bull****. With the help of Google, I saw that home prices did go down in the ’90s.
During that time, the understanding was that the price of homes would continue to go up, and you’d better get in while the getting was good. Before the great recession, people entered my office talking about buying their dream homes and the rate of return on those homes. I kept advising people, please only purchase what you can comfortably afford. However, their mindset was, let’s lock in a price now, and we’ll get pay increases later.
Well, that didn’t work out for a lot of people.
Home prices came down, and they came down hard. A lot of people were on interest-only loans. Others had to move for work, and they were left with a dilemma. Nobody wanted to short sell, and nobody wanted to walk away because they didn’t want to ruin their credit.
The dream that everyone wanted was turning into a nightmare. People were in homes that were worthless, for the most part. They were trapped trying to make mortgage payments and pay property taxes on a home, but they could only get half of what they paid for it. Now, they have to move, and they can’t get enough rent for the home to cover the mortgage payment. They are probably moving to a new place taking, in some cases, $1,000/month loss on their home.
Which means the following:
- They are not able to save as much for your retirement.
- They are not able to provide for their families as usual.
- They have a weight on their shoulders; so, they are not living in the moment with their families.
- They are wrestling with trying to make the right decisions.
I had people who were trying to do the honorable thing. They made a commitment to make their mortgage payment, and that is what they planned to do.
Please let me remind you of something—you made a commitment to your family first. When thinking about any financial decision, you have to ensure your family is in the best possible position.
Where does a credit score fit into this?
Well, the credit score is all fine and dandy while I can make the payments, and I haven’t overextended myself. In a situation where you made some bad decisions, and you are trying to right the ship, your arms should be around your family—not your credit score.
There-there credit score—you’re still over 720.
Now before you make a decision, you should seek help regarding your credit score, but what I am telling you is that you should not give up your retirement funding just to save your credit score. You should not give up your ability to provide for your family just to save your credit score. You should try to figure out a way that will put your family in the best possible position to succeed and then never get yourself in that situation again. You can get back to growing your credit later.
Let me bring it back to the bill of goods.
Just like the real estate market “never declining” in San Diego. I believe we have been sold a bill of goods when it comes to our credit scores. Yes, it would be nice, but it really isn’t necessary for you to have a credit score of over 720. If it drops below this amount, it isn’t the end of the world. You might not be able to get a loan, but we all know how I feel about loans—do you really need to do that right now? Your family is more important than loans and raising your credit score.
Besides, if you’re already in your home and you already have a car, why else do you need great credit, really? If you are looking for work, the topic may come up, but that is only if your credit history is abysmal. I have had clients have a short sell on their credit report. A short sell will only last on your credit report for 7 years, and you still could qualify for a home, if your score doesn’t drop below 500.
During the great recession, we had to have some real conversations about what is really important to the family as a whole. I am not saying run out and run up your credit cards and then just stop paying the bill, but when you are faced with hard decisions in your life:
- Maybe a family member is sick.
- You got laid off from work.
- You have to move to a new area for a job.
Yeah, your credit score should be in the conversation but certainly not a priority.
- You may need to stop paying the credit cards and pay the medical bills to help your family member.
- You may need to immediately stop paying your debts to ensure you keep a roof over your head.
- You may need to short sell your home so that you can salvage some of your quality of life.
These are hard decisions, and you should certainly talk to someone about them. However, remember to put your family and your family finances first.
Learn more about how to take control of your budget so that you can focus on your family’s prosperity by purchasing my book The Financial Effect.
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Photo by Adeolu Eletu on Unsplash
