The system of credit was established thousands of years ago and has evolved into our present day system.  Some of the changes have been beneficial and some have not.  In the not so distant past, those who were unable to pay their debts were put in prison.  Our prison system is already overloaded today.  Imagine the chaos that would ensue if everyone in this country today who had bad credit were suddenly thrown into prison.  Not a pretty picture.

With the current economic crisis, more and more people are finding themselves on the bad end of the credit score charts.  Even if you have a good credit score now, it means much less as credit worldwide tightens.  A year ago with a credit score of 680 could easily get you a mortgage with a fairly low interest rate.  Today, that same score would probably get you denied immediately.  Your credit score is only as good as the health of the lending industry.

Almost all of us have witnessed the uncomfortable and embarrassing scene of someone handing the cashier a credit card only to be mortified when the clerk tells them that their card was denied.  Not only is the customer embarrassed, they have to bear the stares from others that range from pity to scorn. 

One of the big myths surrounding those with bad credit is that we are immune to that kind of embarrassment.  Most middle class Americans are one tragedy away from finding ourselves in the same position.  Death of a breadwinner, sudden disability, and job loss are just a few of the many calamities that can befall anyone, even those who have always paid their bills on time.  Suddenly they find themselves in the position of not being able to make the monthly mortgage payment.

Probably the most frightening consequence of our time is the credit industry suddenly freezing.  When even those with good credit find themselves unable to get or use their credit cards or obtain financing, manufacturers find it difficult to sell their goods.  Merchants are then forced to raise prices to recover profits lost from dropping sales.  Which in turn, causes consumers to be unable to afford the things they need or want.  So, the things that they need have to cut or cancelled altogether.  New cars, boats, appliances, home repairs, and vacations can be impossible to pay for.

The stigma attached to bad credit is still there.  However, with the availability of easy credit and in an environment where anyone can get a credit card or car loan, there are more people with bad credit.  There is a serious danger of losing this stigma, which in the past has acted as a deterrent to bad debt.  It is easier for a consumer with bad credit to look bad if their neighbor looks bad too.

After we recover from the present crisis maybe the stigma attached to bad credit will be restored.  Maybe, for that would be a good result for the economy as a whole…as long as we don’t go back to debtor’s prison.