Yahoo Finance Can You Be Middle Class If You Have a Poor Credit Score?
For many Americans, reaching the middle class is a huge milestone. However, many may also question this status — despite their income or assets — if they have a poor credit score. According to experts, though, your credit score only tells part of a much bigger story.
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“Having a less-than-perfect credit score is akin to having a small stain on your financial record,” said Mikayla Renolds, investment specialist and owner of Cash Offers. “While it’s not ideal, it doesn’t automatically exclude you from the middle class category.”
She adds that the middle class designation is more about your overall financial situation, which includes factors like your income, job stability and your ability to maintain a reasonable standard of living. Below are some things to consider when you’re facing a poor credit score.
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Rough Patches Don’t Equal Lower Status
“Imagine the middle class like a cozy neighborhood with different houses,” said Linda Schroder, real estate investor and owner of Cash for Houses. “Some houses sparkle with fresh paint and manicured lawns, while others might have chipped paint and overgrown flowerbeds.”
That’s how the middle class can be, too. “Some folks are doing great, while others are dealing with a bit of rough patch. Now, having bad credit is like one of those chipped shingles on the roof. It’s not perfect, but it doesn’t necessarily mean everything’s falling apart,” she explained.
High Income Goes a Long Way
“A credit score does not disqualify someone from being middle class,” said Tim Connon, insurance agent and founder of ParamountQuote Insurance Advisors. “Their income is what truly proves if they are middle class or not at the end of the day.”
He noted that a person may have bad credit but have a sizable income to where they do not rely on credit. This is a middle class individual by definition.
Connon added there are also individuals who never built their credit, which results in them not being able to qualify for loans. However, their income allows them to afford $800 or more in rent which allows them to live in higher scale neighborhoods.
“This is still considered middle class so no credit does not define if someone is middle class or not — their income is the real determining factor,” he stressed.
And if your income is high enough, you can still qualify for loans in most cases, said Melanie Musson, insurance expert at Clearsurance. “Unfortunately, your interest rate will be higher than it would be if you had good credit, so you’ll spend more money paying the bank to let you borrow money.”
However, she noted that if your credit score is so poor that you can’t qualify for a home or auto loan, you can still live a middle-class lifestyle if you can afford rent and save enough money to purchase a car with cash. “Your life would be easier if you had better credit, though, so pay your bills on time and work on building excellent credit.”
Money Management Matters Most
“Maybe someone lost their job and couldn’t pay a few bills for a while, or maybe they had a big medical expense that threw their budget off,” said Schroder. These things happen, but Schroder stated that this doesn’t automatically kick someone out of the middle-class neighborhood.
“But, imagine if the whole house is covered in broken windows and the roof is on the verge of caving in. That’s more like chronic bad credit — it shows there might be deeper issues like overspending or trouble managing money,” she said.
That can make it harder to keep up with the middle-class lifestyle of a safe home, good education for the kids, and having enough left over for a vacation each year.
Anton Radchenko, licensed attorney and founder of Air Advisor, also noted that even people with high salaries can struggle to pay debts as much as low-income earners. “While credit score is a popular financial barometer, it’s completely independent of your income,” he explained. “Credit bureaus don’t care how much you earn. They care about how you manage your credit obligations.”
Don’t Look at Bad Credit Itself; Look at the Whole Picture
“If someone has a temporary setback but still has a decent income, a good job, and knows how to handle their finances after this bump, they’re probably still right there in the neighborhood,” Schroder highlighted.
However, she argued that if their financial issues seem ongoing and they’re struggling to make ends meet, it might be harder to say they’re comfortably living the middle-class life. “Remember, everyone’s situation is different. Judging someone’s whole life based on one little thing like a chipped shingle wouldn’t be fair, would it?”
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This article originally appeared on GOBankingRates.com: Can You Be Middle Class If You Have a Poor Credit Score?
