Is 2023 The Most Important Year Ever For Good Credit?
We're about three months into the new year and things started off quite bumpy. The stock market was doing okay and the general economic outlook seemed to be relatively stable, but interest rates recently began to rise again. In addition, consumer spending has slowed notably among smaller businesses (depending on the industry) with many reporting slower January and February sales than usual. And to add a little more fuel to the fire, just this past week we saw major announcements regarding financial institutions going belly up, with one major Silicon Valley Bank collapsing (it was actually named Silicon Valley Bank, or SVB) and another being seized by Federal authorities. Then, only a few days later (which was yesterday), we now see that the San Francisco-based First Republic Bank seems to have one foot in the grave and the other foot on ice and losing traction.
To make things quite simple, we're STILL not sure what is going on, or why. But even to the untrained eye it would seem that something isn't quite right.
For over 12 months now, the housing market, the stock market, the jobs market, and the economy in general have been through some serious drama. While things may seem relatively steady on the exterior, more and more people seem to be feeling both financially confused and/or pressured.
The global Covid-19 pandemic seemed to be the catalyst for most of this, throwing some industries into wild success after a couple weeks of initial shock, while grinding others into the dirt. After what's been just shy of three full years, we're still feeling the financial effects of this situation. As everyone knows, Federal interest rate hikes and inflation have played a large part in both sudden and longer-term fluctuations. We have also experienced broad and ongoing product and material shortages as well as supply-line issues which have produced varying financial effects within certain (and sometimes several) industries.
So what does this all have to do with credit? Everything! Let's explain.
Having Good Credit May be More Important Than You Think
When we speak about having credit or having good credit, it's not just about having credit cards with available funds. In these uncertain financial times, anything can change within a moment's notice - or without any notice at all. While having credit cards with low balances makes it easy to make purchases when you're in a bind, that doesn't necessarily mean you're in the clear.
Let's imagine an example where you want to raise your credit line, purchase a car, or purchase a home. While we all know that good credit is a general must-have to achieve any sort of decent financing, it doesn't mean that you're guaranteed to get what you want. If banks are facing rough times and lenders are tightening their hands or making policy changes that require stricter qualifications for loans, who do you think will be getting approved? It definitely won't be the average Joe with a 650 credit score. And even those who are sitting in the low to mid 700's may see a higher down payment or much higher interest rates if they want to secure financing.
In other words, when things get tough, you're in a better position to come out ahead by having the highest credit score possible. This has always been true in some form or another - the better your credit, the better your opportunities. However, if there's only a limited amount to be lent, or if lenders become extremely selective, it could come to a point where loans and financing are not even available to many people who otherwise would and could normally qualify. Just imagine going into a car dealer and being told that without an 800 credit score or at least 50% down, you're not getting financed for anything. This is clearly a hypothetical example, but one that is not impossible to occur. While things may never get that extreme, we think you can imagine our point.
Yes, It's Important To Have Good Credit In 2023
For everything that we've mentioned above - especially the remaining uncertainty and unfolding potential of seriously problematic issues with major banks, you don't want to be caught off-guard. Your financial plans could be trashed by factors that are out of your control, and a great credit score may be the one thing that could make or break the situation. The difference between getting what you need or want and getting nothing at all could be a simple 20 to 30 points difference on your credit report.
In order to avoid the frustration of feeling that all of your hard work and planning was for nothing, you should always have a backup plan. And since we're talking about credit scores, what is your backup plan? Most people don't consider a credit score to be something that calls for a backup plan. In our opinion, that's not an excellent perspective. As we've laid out in this article, your abilities becoming limited over something such as the amount of a required down payment or insane interest rates on a mortgage are a very real possibility. This is not fear-mongering, either. It's a simple explanation as to why planning your credit is just as important as planning your retirement, or any other major factor that can act, react, or function in a way that affects your ability to carry out your plans.
But how can you actually plan for your credit future?
Planning Your Credit Score
We suppose that advice on planning your credit score will have to be it's own article, and we'll be sure to write that one very soon. In the meantime, we can tell you that sticking to the basics of implementing the best practices for credit must be stressed, and cannot be stressed enough. In fact, we'd urge people to get those balances down, use those cards less, and if you can afford to, take care of some payments that you've been putting off or begin addressing existing credit problems right now - not later.
A very helpful tool for those who already have good credit is to utilize the power of authorized user tradelines, but these are circumstantial and not always a long-term solution. What you really need to do to begin planning your credit is analyze it, put any financial plans you have into perspective, and then strategize (or at least brainstorm) on how you might expand your credit worthiness through creative use of your money. This might include how you manage cash vs. credit, and how you could create a goal that falls within your reach even if things don't go according to plan.
2023 might prove to be the most important year ever to have good credit. At a minimum, it should be the year that you begin planning your credit score rather than just watching, observing, and maintaining it. Even if you are actively trying to grow your credit and doing a great job, you still may be lacking that "backup plan" which we mentioned. More coming on that in a future article. Until then, spend your money wisely and get those creative wheels turning for what could be a very eventful year from an economic standpoint.
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