With Credit Ratings a popular topic it seemed like a good time to relate this old story.
I had a friend a while back who was going through a financial rough patch but wanted to maintain her high credit score.
I told her to call the mortgage company immediately, explain the situation and attempt to drag them out as long as possible. Then use the breathing room to make sure that she made the minimum payment on the credit cards every month even if it meant skipping the mortgage payment.
She asked why the credit agency be consider her more responsible if she shafted the mortgage company while paying the credit cards. My response is this:
The Credit Agencies don’t give two shits about how responsible you are. Your credit score is not a moral judgment on you. It is an estimate of how likely you are to pay your debts on time, particularly your unsecured revolving debts.
If you are the type of person who knows how to string along the mortgage company in order to pay keep your revolving debt current then you are in fact a better credit risk for the credit card company. A person who does not know this – even if she is Mother Teresa – is a worse credit risk because Mother Teresa, not knowing how to juggle creditors, is more likely to default.
This is the key thing to remember: If I am your creditor then I don’t care about your morality. I care about whether I am going to get my money. If you could convincingly communicate to me that you were willing to kill your mother in her sleep in order to pay me with the insurance money that would significantly up your credit rating with me.
Because that is a very strong signal that I will, in fact, get my money. This and only this is what I care about.