Can You Get Credit?

If you haven’t realized it by now, let me warn you: taking out credit comes with some risks attached. If you are borrowing either on a credit card or a loan, it really is not advisable to borrow “as much as you can”. Understand that the amount you can borrow is usually determined by the bank or institution from which you borrow it. And, although there is (or is supposed to be) some sort of connection between what you earn, your credit rating, and the amount that the banks will lend to you, sometimes that connection seems a bit vague.

Let me give you an example. My mother had an excellent credit history. She had purchased things on credit, but had always managed her credit and paid her bills on time. When she retired and her only income was social security, you would have thought that would have changed her credit rating. Apparently not. She continued to get more and more credit card offers for ridiculously high amounts. In fact, her current cards continued to raise her available credit higher and higher.

Then one day it happened. Her debt was no longer manageable. She had over $30,000 in credit card debt and her social security check was only $600 a month. You do the math. If she had been able to apply her entire earnings to her credit cards (which of course she couldn’t) and if the banks had not charged any more interest (which of course they did), it would have taken her 4 years to get out of debt!

Most people who have worked in credit control will tell you of an account they saw which showed a customer defaulting on a credit card where their credit limit was pretty huge and their monthly salary was comparatively small. Due to the limitations of the process used to judge some bank’s credit limit provisions sometimes there will be excessive money lent to people who give in to the temptation to spend it even knowing that they cannot afford to pay it back.

Alternatively if you have not shown a good history of paying back credit when you get it, you run the risk of either not getting credit or getting very low limits and very high interest rates. Depending on your reasons for wanting credit in the first place, this might be a good thing since you won’t be able to run up such a big tab. On the other hand, if you are applying for a home loan, the lower limit may keep you out of the house you want to buy, or the higher interest rates may cost you hundreds of thousand of dollars over the life of the loan.

 

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