What is a bad credit score?

In 2005 I took an 18 year old kid to help him open a bank checking account. Once his account was opened he was issued a bank check card so that he transacts business with the bank using the ATM machine. This kid immediately with drew the money in his newly opened bank account using the ATM machine. As he went back to the ATM machine to get more cash the ATM machine asked him if he is willing to pay an overdraft fee of $20 for overdrawing the next $20. This kid continued to go back to the ATM to withdraw $20 each time till the ATM card was swallowed by the ATM machine for having overdrawn the maximum permissible limit of $100. This kid never dared to deposit his next paycheck in the bank as the bank would deduct the $100 overdrawn and the $100 levied as overdraft fee. Since the money was not paid back to the bank the bank started reporting his negative/bad credit report to all the national credit bureaus. The kid definitely did not learn any lesson by messing up his credit history for next ten years but what lesson did I learn from this transaction? Did I make a mistake to introduce this kid to the bank? Should the bank permit overdraft in the first place?

I have tried to teach credit card holders of all age and profile about how their personal loan application is effected if they do not pay in time but they do not seem to understand It is generally easy to get a loan for purchasing an asset such as a car or a house even with a bad credit rating. This is due to the competition in the automobile and house construction business. The automobile companies and the house construction industry have a built in share for the lending institutions. In other terms the borrower loan is subsidized by the automobile company or the house construction company. Some countries constitution may classify this kind of a business tie-up un-ethical. In my view it is such un-ethical business tie up that have resulted in the borrowers repayment installments to be over inflated. A typical car dealer shall offer “0” percent interest rate on the five year car repayment installment. Similarly most furniture manufacturer shall ask you to start repaying installment a couple of years after the furniture has been purchased. These offers obviously have a high mark up build into the cost price to cover for the promotional “0” percent financing or deferred financing.

Borrowers always optimistically estimate that their future income shall go up. The borrowers fail to over look that they shall end up with a bad credit history in case they loose a job or are not able to find a new job in case they move from one city to another.

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