A recent survey found that nearly one in four U.S. adults have unmanageable unsecured debt, and credit card balances have reached an all-time high at $1.21 trillion. This is partly due to the artificial stimulus that kept consumers confident and spending during the coronavirus pandemic. However, interest rates are now lower than they have ever been, and the economy has become much hotter, leading to a surge in debt. The credit crisis is not just a matter of personal finance; it’s also a systemic issue. The Federal Reserve Bank of New York reports that consumer household debt in the U.S. has reached an all-time high of $18.04 trillion. This means that many Americans are living paycheck to paycheck and struggling to make ends meet. Personal finance expert Micah Smith, also known as a “credit doctor,” attributes the debt crisis to poor credit. She believes that Americans are vastly overpaying for things because their credit is not where it should be. “Your credit is the cornerstone to having any wealth at all,” she says. “It’s not something that is just in your face. It’s something that you have to seek out.”
Smith emphasizes that missed payments stay on credit reports for seven years, causing the most catastrophic damage. Other common credit mistakes include not tracking student loan accumulations and failing to swiftly recognize report inaccuracies like new accounts, hard inquiries, or potential fraud. “Thirty-five percent of your entire credit score comes from payment history,” she explains. “And if you have lates and if you have blemishes and you have missed payments, not only is your score tumbling down, but you look very, very risky to lenders.”
Smith also warns that the biggest misconception around credit is that paying off debts will automatically boost your score. “I would say probably at least half of our clientele believes that, ‘I paid this off, I had a derogatory item on my credit report, I paid it off. Why isn’t my credit better? Why didn’t it go away?’ ” she claims. “Most of the time what you’re seeing is a reactivation of the debt… the newer it is, the more impactful it is to the credit score.”
To build strong credit, Smith recommends keeping an average credit score of 760 or higher, always being aware of what your score is at any given time, and using updated-daily credit institutions like Experian and Credit Karma. She also emphasizes the importance of being informed and aware of what’s on your credit report. However, Smith also acknowledges that repairing bad credit can be challenging. “We’re going up against the credit bureaus, who are for-profit entities,” she says. “They’re extremely busy and there is quite the process to even getting your letter to a real live person.” Despite this, Smith encourages Americans to avoid late or missed payments of any kind, and to seek professional help if needed. In fact, Smith believes that the current market conditions are ideal for making timely payments. “With credit at this point, the biggest thing that we’re seeing is please, please, please just make all of your payments on time… in these types of markets, any excess that you have, this is a great time for you to be putting money in,” she adds. “Don’t panic, don’t sell everything. Just ride the wave.”
Key Statistics:

• nearly one in four U.S. adults have unmanageable unsecured debt
• credit card balances have reached an all-time high at $1.21 trillion
• consumer household debt in the U.S. has reached an all-time high of $18.04 trillion

Tips for Building Strong Credit:

1. keep an average credit score of 760 or higher
2. always be aware of what your score is at any given time
3. use updated-daily credit institutions like Experian and Credit Karma
4. be informed and aware of what’s on your credit report

Common Credit Mistakes:

1. not tracking student loan accumulations
2. failing to swiftly recognize report inaccuracies like new accounts, hard inquiries, or potential fraud

Benefits of Timely Payments:

Conclusion:
The credit crisis is a systemic issue that affects millions of Americans. By understanding the importance of credit and taking steps to build strong credit, individuals can avoid the pitfalls of poor credit and make informed financial decisions. As Micah Smith, a personal finance expert, emphasizes, “You’re only as sick as your secrets. Don’t keep this to yourself. You need to talk about it. You need to share it with someone who can help you find a solution.”
“History always repeats itself,” Smith encourages. “And so we are going to come out of this and things are going to recover and they’re going to recover very, very well. So, when it comes to that side of things, just let it be, ride the wave, right? Don’t panic. Don’t sell everything.” By taking control of your credit and making timely payments, you can navigate the current market conditions and achieve financial stability.