Understanding credit and the forces working against you will help you improve credit
Before you can understand how to improve credit, you must first know what credit is and how it really works. Credit is simply receiving something of value from a lender and agreeing to repay in the future. Often times, a contractual instrument is written and executed to hold the lender and borrower accountable to the terms of the contract. If the loan is not repaid, then a breach of contract and default occur, and the borrower is subject to the terms and penalties of the contract.
Before the technological revolution, lenders and borrowers tended to know one another and lenders knew more about whom they were lending to. Now, borrowers and lenders are mere shadows in the night and remain faceless. Credit issuance is based on pertinent facts about the borrower which usually go unverified. Technology shields the borrower from the lender and vice versa. Credit defaults are becoming the norm in our bubble economy, where most borrowers do not even realize or care whether or not they will be able to repay the loan.
Our society is gripped with instant self gratification at the expense of serious future ramifications. Why and how did this happen? I believe the why comes from a tainted political system where reelection is all that matters, and is funded by wall street in return for regulatory favors which in turn have created too many boom-bust cycles in the last 15 years. If 4-year term limits were put into law this would stifle the why. The how, I believe, has been a slow and deceptive process through easier credit to the masses over a 20 year period. Instead of living within our means, the new norm is to live outside of our means. Bankruptcy is no longer a nasty word and has become a viable option, dare I say, a means to an end without considering the repercussions. Accountability for your actions and your good name are not held in high esteem. The boom-bust cycles continue to increase in frequency and scale. The last, almost led to a catastrophic meltdown of the United States financial system.
What must happen to correct our credit woes and improve credit? Government regulation, term limits for elected officials and personal accountability. All of us must live within our means, save more, and only use revolving credit as a convenience and not a bank account. If you have a burning desire to improve credit, then you must go back to the basics of sound money management. If you do not have the money to pay for it, then it is a want and not a need, unless something with measurable intrinsic value is purchased and will offer a return of principal and a return on investment in the future. Sound financial principles should be the norm and a means to an end to improve credit.
