Forbes reported this week that Sprint shares plummeted after one analyst gave the company a less-than-rosy financial rating and noted that he believed it has a 50 percent chance of filing for Chapter 11 bankruptcy protection.
But here’s the kicker: Sprint’s financial fate is closely tied to the predictions and analyses issued about its future. After an analyst downgraded Sprint’s stock status, its share price dropped from $2.50 to $1.75, illustrating how quickly investor expectations can become reality.
Of course, Sprint is facing legitimate challenges to its business model, and would likely have suffered a decrease in its stock price eventually, even without the analyst’s comments. But the plummeting stock price won’t do the company any favors as it tries to get back on its feet. Here’s how your finances are more or less the same.
The Predictive Power of Your Credit Rating
The individual equivalent of Sprint’s public rating is the credit report and credit score. When you have a low credit score…
- You’re seen as a “bad risk” by lenders. Because of this, they are less willing to extend you loans. Those loans you are able to secure will come with higher interest rates than they would if you were deemed a “good risk.”
- You pay more to borrow. Over the course of the repayment of your loans (which may come in the form of a credit card, a mortgage, a car loan, etc.), you will end up paying more in interest than someone who had stronger credit than you.
- You have less money. More of your money goes toward loan payments and less of it goes toward savings and paying down other debts. The more debt you have and the less you have saved, the more your credit score will suffer, meaning that it will continue to be difficult for you to get attractive loans.
Of course, the opposite is also true: if you secure a good credit rating, you will qualify for loans with lower interest rates, leaving more of your money available to pay down debts, save, and generally improve your credit worthiness.
Break the Debt Cycle & Build Stronger Credit
There’s no fast way to build stronger credit. Negative credit actions (including foreclosures and bankruptcy filings) remain on your credit report until their statutes of limitations expire.
But while the process isn’t fast, it is fairly simple. The easiest way to improve your credit rating is to ensure that you pay all your bills on time. Set up a plan for paying down debt, save money, and eventually the positive actions on your credit report will start outweighing the negative ones.