For better or worse, credit is part of our modern lifestyle. We’ve all had a form of credit, one way or another at some point in our lives. I wonder if it’s even possible to live in modern day society without it. So, for something as ubiquitous and inescapable as credit, how is it that financial illiteracy is so high?

Although credit is neither good nor bad, I like to compare it to fire: It’s good if you cook with it, but it’s obviously bad if you burn your house down with it. Speaking of burning your house down, did you know you can also do it without fire? Sure you can, just commit yourself to one or two very bad credit products and you’ll see exactly what I’m talking about.

Our lack of understanding of credit undermines our financial health, our lifestyle and our happiness in a very profound way. It’s the absence of this knowledge that many times gives way to us choosing bad credit products, and again, I’m not saying credit is bad, but poor credit products suck. Think about it. When you find yourself needing money to meet certain needs, you go out shopping for a loan. Ironically, in our search for a solution, sometimes we end up finding a bigger problem then we started out with, just because we didn’t know the difference between a good product and a bad one, for our particular need.

Here is a classic example: You require $5,000 to pay for some medical needs, so you figure you’ll put it on your credit card. You max it out, but you can make small payments every month, and you’re thinking, “Nailed it!”. No, you have just committed part of your monthly income to paying interest, not paying down the original credit. You nailed yourself into a very typical situation where you chose the wrong credit product for the need. There is a difference.

A credit card was designed to make banks money. At it’s best, it is a highly convenient payment tool, but at it’s worst, it’s a perpetual debt with very high interest rates. Think of quick sand, you’re standing on it, and with every minimum payment you make you manage to end up on the same spot. The difference from where you were before you made this unfortunate decision and now is that now you have less available income to spend every month, and you still owe the bank the whole $5,000. Yes, pain!

Products like credit cards have the added risk of distorting our financial realities. The ability to pay for something (the feeling a credit card in our pocket gives us) is not very different from the concept of AFFORDABILITY. By definition, affordability is the belief that buying something is within one’s financial means. It just so happens that credit is not part of our income, that is the distortion.

But we as consumers are not alone in the NEED TO LEARN corner of credit. Some lenders are equally ignorant in the way they size risk and price for it. Loan products that carry high interest rates are many times pedaled by lenders that will make US pay for THEIR inabilities to understand our credit stories. In addition, they boil us down to a FICO score and make us go through tedious application processes that only add insult to injury when they come back with NOT APPROVED. A lender’s inability to understand us as a borrower, combined with our poor understanding of credit, is what leads us to be stuck with toxic credit products.

This very complicated and painful reality is why we decided to start LendingPoint. We want to change the way people access credit, and we want to make sure we set up our customers to succeed. This is our dream. We believe that an educated customer is a much better customer. We understand that individuality is nature and that cookie cutter approaches to understanding people is not. We see past FICO to understand your credit story, we’re interested in comprehending your life events, your journey.

At LendingPoint, we come to work everyday to provide our customers with fair loans at fair interest rates. We want to uncomplicate the complicated, and serve with dignity and respect. And that’s a promise we are willing to keep, because we know for a fact that better loans give way to better lives.

By:

Victor J. Pacheco

Victor J. Pacheco is a co-founder of LendingPoint and our Chief Product Officer, always striving to ensure the highest level of customer satisfaction and one-on-one service. With over 20 years of experience in financial services, merchant cash advance, and international payment processing industries, Victor brings a seasoned skill set to the LendingPoint executive team.