A credit score is based on a person’s ability to pay back what he/she has borrowed. The critical component of a credit score is the credit history, essentially your sins or virtues of the past, based on how you have made your regular payments to your creditors–banks, mortgage lenders or credit card companies. Now, here is the glitch. If you have a checkered or erratic history of paying back what you owe (especially for credit card holders), or you default on your loan by declaring bankruptcy or failure to pay your mortgage, your credit score will go down. That means you are a “bad risk”, an economic “goat” who financial institutions and other lenders have to avoid. That will be reflected on a low credit score.
What if you are economically conservative and try to live within your own means by avoiding borrowing, or if you borrow, you pay on short notice. This means that you will have no track record that credit analysis evaluators can base their judgment on. An unknown “economic animal” is a “bad risk” that should also be avoided. This will be reflected in a low credit score. In fact in extreme cases where people have never borrowed any money, then they have no “economic existence”. They have moved into the pale of humanity and heavens forbid if they show up at a financial institution to borrow money. They will meet with the proverbial brick wall and will politely be shown the door!
The Moral
You are damned if you are poor or struggling financially. But you are also damned if you are financially secure, and refuse to be ripped off by financial institutions whose profits depend on extending credit and charging interest! Personally I fall in this category and when I showed up at a dealership to buy a car, I had a hard time securing an auto loan. But I persuaded a credit company to lend me the money so that I can establish my “economic existence”. This year I will sell my house and pay off the remaining modest balance on my auto loan. When I do this, I will also fall off the radar of the credit analysis snoops. That does not matter, because I will completely relocate to Kenya and come back to the US for health check ups and visiting with my children.