Do You Really Need a Good Credit Score?

A older potential client comes into the office to discuss bankruptcy. After analyzing the client’s situation, I explain what bankruptcy can do for them. The client will lament that their credit score is/was so good and bankruptcy will give the client bad credit. At that point, I have to stop the client and ask them, Do you really need a good credit score?

Your credit score is based on various factors like amount of debt, are you in default on your debt, do you have a job, etc… All this info is crunched into a number that is supposed to tell a lender what the odds are you will pay back a debt. The higher the number, the more likely you are to pay back a debt. Generally speaking, the higher your credit score, the easier it is to get credit and the lower the interest rate will be.

For many older people, getting new credit in the future isn’t in the cards. They don’t want to get a mortgage, nor do they want to get a car loan in the future. They already have too much credit card debt and have sworn off using credit cards in the future. So if you’re not borrowing any money, a low credit score won’t effect you.

This leads to the other point I make, there is a cost to maintaining a high credit score. Lets say your minimum debt payment a month is $1000 and if you paid that $1000 for the next 5 years and didn’t borrow any more money, your debt would be paid off and your credit score would remain high. So in that scenario, your good credit score is going to cost you $60k over those 5 years.

Compare that to filing chapter 7 bankruptcy. Instead of paying the $1000 a month to creditors, the bankruptcy would discharge the debt within the first 3-4 months. So if you’re not going to get new credit in the future and the costs of food, gas, medical care, etc… going up, what’s more useful to you? $1000 extra per month or good credit?