My score for the current credit rating system is an F minus. The reason why is that it is definitely repressing the attempt to stimulate the economy! People who have had to declare bankruptcy, face foreclosure, etc due to illness or job loss, etc; will have their credit ratings affected negatively. Once a person's credit rating is affected negatively, it becomes difficult if not nearly impossible to apply for a loan, get credit, etc. For example:
Mr. X just lost his job as a music professor because the univeristy he was working for downsized his department. Mr. X was part-time faculty thus immediately his job was cut due to down sizing as priority was given to permanent staff. His income from his job, though meager, was enough to cover his mortgage. Now, after a couple of months job searching and unemployed, Mr. X's credit rating has gone down. He is both short of funds, struggling to survive and now has bad credit.
With a negative credit rating, Mr. X can do little to nothing in terms of improving his situation. Similar to his situation, the economy is no where close to improving. Why?
For Mr. X, he can do little to nothing to improve his situation because his negative credit rating limits his options. He can not start a business endevour without some capital. He cannot continue to survive each day and pay his bills without some income. This vicious cycle continues because as his credit rating continues to drop, his situation remains unchanged (if its not getting worse), and because his situation remains unchanged, his credit rating will continue to drop.
For the economy, since Mr. X is without a job, how will/can he spend? How will he improve and change his current situation without some money? Who will/can he borrow from since he is "not credit worthy?" His "poor credit worthiness" is due to no fault if his, he lost his job and is desparatley searching for another. It was during this period of unemplyment his credit was affected negatively. His "poor credit worthiness" is not the result of any irresponsible behaviour.
Bottom line is Mr. X isn't spending, and let me remind you that "Consumer spending makes up about 70 percent of the economy." He isn't spending simply because he has bad credit. Since he has bad credit no one will lend him money. In addition to not being able to spend, Mr. X may not be able to change/improve his situation because of his bad credit. He can not undertake starting his own business because no one will "take a chance" on someone with bad credit. He cannot pay to compete in the job market because he has no funds. He does not qualify for many opportunities such as buying a house or a car, or applying for credit cards. Even after getting a job it can take three to four years to improve one's credit rating to the point of being credit worthy -a credit score of 650 an above.
Imagine thousands of people in Mr. X's position. People out there who want to spend but can't because they simply do not have the cash and they are not credit worthy. For the government to stimulate the economy, the solution may not just be to flood money into the banks as a "bail-out" or buying toxic assets etc, but also to either revamp or do away with the credit rating system.
People want to buy but they need the credit. If credit is available but it is hard to qualify for there will be no spending. No spending means a depressed economy irregardless of "bail-outs" and so called "job creations."
