Springfords LLP blog

Some news, views and comments about everything and anything, relevant and irreverent.

No Debt. No Credit. No Service.

19 August 2014

You wouldn’t present yourself for an important meeting in a dishevelled state and expect to get an attentive hearing, but turn up in your best bib and tucker for a credit scoring and you may be unpleasantly surprised with the reception you receive.

The subject was recently tackled on You and Yours - the Radio Four programme for people who don’t accept that life is just like that.  In fairness, this wasn’t another expose of cheap air fares delivering cheap service, nor a litany of people who thought it was unfair that the money they had given over the internet to the Nigerian royal family had now gone missing.  No, this was something genuinely of concern.  This feature was about perfectly reliable people, who’d denied themselves the unsustainable credit-fuelled lifestyle, only to find their good housekeeping made them an unknown quantity to lenders, and therefore an unacceptable risk.

We’re all told that next to cleanliness, being out of indebtedness is next to Godliness.  The quite correct standard advice says the best way to save is to reduce debt.  So, we’ve all been busily overpaying our mortgages while we can and, if people like Martin Lewis are to be followed religiously, we’ve been putting our credit cards in our industrial-strength shredders.

In other words, we’ve gone out of our way to avoid going into debt.  Now that our outstanding balance is minimal, and our purchasing is carried out without anyone saying ‘that’ll do nicely”, you’d be justified for considering yourself the paragon of personal prudence, and the ideal financial model for the catwalk of the new economic fashion show.

Sadly, you’re not as attractive as you might think, and here’s why.

When it comes to making those big personal financial transactions, all of us will have been the subject of the ubiquitous credit score and check.  Quite simply, your reliability to meet future commitments is based on your performance in servicing commitments in the past.  Immediately, the issue presents itself in the shape of a real problem with the financial 'credit checking' system.  If you've been clever enough to largely avoid being in debt you are already severely disadvantaged, and your credit score will be blighted as a result.

Now, most of us are not perfect, and we have from time to time had a debt we’ve perhaps taken a payment or two to clear.  Nothing ostensibly wrong with that, as long as you have a mature head on your shoulders, and a good grasp of your budget, month to month.  The problem is, not all of us have done so - for whatever reason - and the present system mitigates against the prudent.

Our concern is that the traditional method of credit scoring, on which so much emphasis is placed for our personal financial reliability, encourages young people to use credit facilities from an early age.  That’s at a time when we are inexperienced and susceptible to marketing that benefits commercial concerns more than it does the consumer.

If being profligate with plastic is not only encouraged, it’s also a necessary part of building credit credibility, that's encouraging the sort of credit based budgeting that's likely to be difficult, tempting, and potentially disastrous for young people.

Unless there is a sea-change in how credit worthiness is considered, then, no matter what your age or circumstances, a happy medium of spending and servicing your debt will remain the most likely way to budget for a good credit score.

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springfords blog

Some news, views and comments about everything and anything, relevant and irreverent.

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