Guest Article from BestCompany.com
Credit is like an employer that everyone needs to impress in order to get a raise or promotion. You don’t know exactly what to do to please him or her, but you do know that you can’t afford to make a mistake. When it comes to your credit, a single mistake could have a major negative impact on your credit score. This type of negative credit impact could potentially ruin your life plans.
So, why is there such a major emphasis on credit? There are a few reasons.
- Credit cards are popular. It’s no secret that credit card payments are increasingly becoming more popular than cash payments. Cash used to be everything, but in today’s society, credit is one of the most used forms of payment because credit card payments are simple and secure. With one swipe, you can make a purchase. If your credit card gets stolen, it’s easier to keep your money safe. It’s not surprising that credit cards are popular payment tools.
- Credit can give you more freedom. Good credit brings great opportunities to the table. When you build good credit, you can have more freedom to choose where you live, what you drive, how much money you spend each month, etc. The better your credit score is, the more societal mobility you can achieve.
- Society relies on credit. People really rely on credit to shape their lives. As mentioned before, your credit can determine what kind of opportunities you can get. Not only that, but your credit can show people either a good or bad side of yourself. For instance, if you have bad credit, lenders will assume you aren’t as responsible as you should be and may deny your loan application. Society relies so much on credit that people must have good credit in order to be trusted with certain types of accounts and financial decisions.
Now that you know why there is a large emphasis placed on credit, here’s what the future of credit may look like based on current trends.
The discard of physical payment types
Physical payments are already taking one step out of the day-to-day picture in order to make way for payment apps like Venmo, Apple Pay, Samsung Pay, PayPal, Google Wallet, and more. With these apps, people can make purchases and pay one another without having to worry about counting out cash or writing a check. More and more businesses are now accepting these revolutionary payment types. The more society uses these payment apps, the fewer people will use physical payment forms like cash, credit card, debit card, or check.
Another payment form that is up and coming is the institution of the virtual credit card. Current virtual credit cards involve temporary 16-digit numbers that can be used to make one-time online purchases. Since these virtual credit cards have temporary numbers and cannot be traced back to a physical credit card number, they create a safer online purchasing experience. In addition, these virtual credit cards often allow the user to set a maximum spending limit to ensure that the user does not overspend. Although virtual credit cards are a recent technological advancement, they have the potential to become a popular credit-related payment type in the future.
More individualized credit scoring
Currently, there is a “one-size-fits-all” expectation for credit scoring. The FICO credit score is determined by five factors: payment history, amounts owed, length of credit history, credit mix, and new credit. These five factors are what everyone should follow. Basically, they don’t rely on a case-by-case basis. According to TechCrunch, “credit will become more multivariate, using machine learning and breaking apart the contributing factors and weights that make up FICO.”
Having more individualized credit scoring might be a reality in the future in order to create a more advanced, accurate credit score for each person. Although current credit scoring appears to work for the American society as a whole, the future of credit scoring could be more efficient as society advances. It’s pretty clear that as society advances, credit (along with everything else) will have to change to keep up. Only time will tell when the credit scoring system will shift.
Improved credit card security
Lastly, the future of credit will most likely involve greater security measures. Hackers and other cybercriminals are only going to get more threatening as technology advancements are made. Recent data breaches like the Equifax breach or the Wells Fargo breach prove what hackers are capable of. And that only scrapes the surface. Although credit cards and payment apps are fairly secure payment types right now, they will need to be even more secure in the future as hackers test new ways to obtain people’s credit information. After all, the more data society creates (with the increase in digital payment types), the more society needs to focus on security.
Overall, it’s difficult to determine and predict what will exactly happen to credit in the future. Credit and credit processes may stay the same for a while or they could change at any moment depending on what society requires. Regardless of what changes may come, it’s still important to focus on building good credit, fixing what bad credit you may have, and continually learning about the in’s and out’s of credit and why it’s still so important in today’s world.