5 Reasons You’re Scared to Look at Your Credit Profile
For some people, credit is the new C-word. It gets them riled up. It brings up images they don’t want to see, emotions they don’t want to feel, thoughts they don’t want to process. And yet it’s a word that’s uttered almost everyday. Whether they’re looking to apply for a car loan, in conversation with a good friend, or just about to buy a phone, someone mentions something about credit. Do you feel oppressed by your own credit? If so you’re not alone, and there are many reasons why you may feel this way. But more importantly, it’s possible to free yourself from the torment of “credit-phobia”.
1. You Have a History
It’s natural to avoid thinking about things that hurt us in the past. A breakup, an injury, a failure – you certainly don’t want to dwell on it for too long. That’s why dealing with credit, whether it involves a check from lenders or applying for it in some form can be traumatizing if you’ve had credit problems in the past. It’s even harder if you’re just starting to climb out of debt or bankruptcy. So when you’re considering a transaction of some sort, the thought of having a credit report checked is enough to induce anxiety alone. This can be true even long after you have recovered from poor credit.
2. It’s Too Complicated
The thing about credit is that it’s anything but simple. You most likely have a general idea of how it works and what it involves, but that’s where it ends. To understand credit may seem like trying to learn a complicated, new hobby. Bankers and lenders who deal with credit terminology all day have an intimate knowledge of how credit scores work – something that few of us on the outside fully understand. That’s one of the reasons why people often receive surprises and “shocks” when they’re denied a loan they thought they would be approved for. Or they fall into a dizzy spell after learning that there’s much more to their credit score than just paying bills on time.
3.You Realize Good Habits Don’t Always Matter
Closely related to our previous point, is the issue of “good habits”. You have to understand that your timely payments, although wise, is not the only factor that contributes to a healthy score. It’s like a healthy diet and exercise routine – it can certainly have it’s benefits, but they’re not the only elements of good health. Stress levels, recreational drug use and risk-taking behaviour can also influence your health, diminishing the overall benefits of good food and working out. Likewise, there are other elements that go into a healthy credit score besides just paying for things before the due date. Unfortunately, this financial literacy isn’t openly taught. And that’s why we have a population of people who are walking around with the misconception that punctuality is the key to a high credit score.
4. Too Many Numbers
As you’ve probably noticed, this post is largely about the confusing nature of credit. To add another layer to all of the complication, is the number of…well, numbers, that contribute to your overall credit profile. There’s more than one. Several credit scores exist out there, and they can come into play depending on the financial transaction you intend to make. For example, there are two major credit reporting agencies in Canada – Equifax and TransUnion. Both of these agencies generate scores based on information given to them by creditors. What often happens is that creditors may report to one of these agencies, and not the other. They might also update these agencies with your information on a monthly basis or less. That’s why it’s possible to have at least two different scores, which could lead to different outcomes if you apply for a loan or go through with some other transaction.
5. Walking on a Tightrope
We’ve addressed several reasons that make people fear credit, but we haven’t examined the one that probably scares people the most. It’s the fact that a good credit score is so easy to ruin. True, if you’re handling your finances well enough, you won’t have a problem with credit. But to deny the reality that a few wrong moves here and there can’t harm you, would be blissful ignorance. If you lack financial literacy or guidance from an advisor (which is common for young adults, especially those in their 20s), you’re more likely to take stabs in the dark when it comes to managing your money. And if you have heard stories or seen friends or family members suffer the effects of bad credit, it can be frightening enough for you to think about credit as a whole.
Are Credit Fears Irrational?
With all that’s been said, it’s worth asking if these fears are realistic to have. It’s good to have a concern over the state of your credit and finances, but that’s where it should end. Undue anxiety doesn’t prevent or solve problems. More importantly, too much worry over money matters is a major cause for stress-related illnesses, many of which can lead to serious, if not life-threatening consequences. Instead of worrying, you need to invest in the right kind of support if credit is something you struggle with.
Finding the Right Guidance
- Financial advisors – Speaking to your financial advisor is one of the best ways to get a grip on your money. Whether that means learning how to reduce your debt or budget your money, a financial advisor can help you identify ways to improve and habits to remove. Ultimately, this will affect your credit score for the better.
- Financial literature – Books (or in this digital age, online business magazines) about money can give you insight about credit management. It’s important that you choose wisely, however. When it comes to print material, some of the information and statistics may be outdated, especially if the book was published several years ago. Also, with business sites, it’s important that you distinguish between the biased and neutral – some writers may have the tendency to reflect their own opinions, rather than giving you solid advice.
- Financial counselling – Another option that’s available to you is financial counselling in the form of courses. Tailored to those monetary issues, these courses offer a similar service to what a financial advisor provides. The difference here, is that you can share your experience with a group of individuals who are going through the same struggles as yourself (although one-on-one counselling is available too).
Don’t Let Credit Intimidate You
It’s good to have a healthy concern over the state of your credit. You’ll avoid making unnecessary transactions, piling up large sums of debt, and will give you the incentive to pay all your bills on time. In other words, a tiny dose of “worry” is a good thing. But when it overwhelms and paralyzes you, then you’ll need to seek advice from the right sources. Plugging into the guidance provided by financial experts, whether they are advisors, counsellors or writers, can help you develop a deeper understanding of credit. You’ll start to see how you can make your finances work for you. In time, you will see credit in a more approachable light.