Access to affordable credit is a way to find out if you are a middle class

Like many Americans, Chris Gray had financial problems after accumulating significant medical expenses – in his case, for hip surgery four years ago.

"Medical bills start to accumulate, especially if you can not work," said Gray, a 37-year-old Phoenix resident who works in sales and delivery for a flooring company. "You burn your savings urgently."

Gray's credit rating fell into the sub-prime category, making it more difficult to obtain loans at attractive interest rates. He ended up borrowing money using payday loans and securities lending.

Gray is now paying his debts, often working 60 hours a week at his usual job and at a parallel job, but his financial life has not returned to the east where he wants. Having a subprime credit score has limited its options.

"Until I have a good credit score, (a conventional bank loan) is not going to happen," he said.

Access to credit in the strictest

When most Americans plan to be part of the middle class, they usually imagine they have some level of income and material assets such as a car or a house. But another way of thinking is to have the ability to borrow money, if needed, at affordable interest rates.

"Access to credit is the new dividing factor of the middle class," said Jonathan Walker, executive director of the Center for the New Middle Class of Elevate, a research and advocacy group. "When unforeseen expenses appear, they can become a crisis if you do not have access to credit."

Having access to credit does not necessarily mean using it or abusing it. A small slice of Americans is rich enough not to need to borrow money. But for most others, good credit is not only desirable, but is also important financial support.

Risks of low credit scores

People with lower credit ratings – generally below 650 to 700 on the FICO 300 to 850 standard scale – often can not borrow cheaply when they need money, whether to build their wealth (for example by buying a house) or to deal with emergencies medical expenses, car repairs or other important expenses.

This means that they might need to resort to expensive borrowings to the limit or abstain.

According to a study cited by the Walker Group, about 160 million Americans have subprime scores or no credit score. Usually, it is because they have already fallen behind on their bills, their late payments or their bankruptcy. When new expenses arrive, they often have trouble paying for them.

"Anyone who has to pay 400% annual interest (for a pay-type loan) will probably not be able to repay it quickly," said Mike Sullivan, personal finance consultant at Take Charge America, a Phoenix-based company. credit counseling based. "Once you're dealing with payday loans, it's hard to get out."

Middle-class Americans in difficulty, unlike the poor, are often unaware of different social protection programs such as government-subsidized food or medical problems. Either that, or they do not think that they will qualify or are too embarrassed to ask for help, often considering their difficulties as temporary, Walker said.

According to a new study by Northwestern Mutual, about 30% of adults are about to need to borrow money or make missing payments on their bills.

What drives debtors to the limit

Many factors can create problems, but two factors emerge. One is a reduction in hours of work, which was cited by 55% of the less affluent respondents in a survey conducted in May by the Walker Group. Twenty-four percent cited medical bills as the main cause.

Secondary factors included a big car repair (11%), leaving the house for the first time (6%) and paying a child's tuition (5%).

But rather than just one thing, it's often a combination of pressures that push people towards financial water and damage their credit. Of the survey respondents who cited medical costs as the primary driver, three in four also reported lower income, making it more difficult to manage these bills.

People with subprime credit scores reported that unexpected costs of more than 30% of their monthly income would be enough to disrupt their finances. On average, it would take on average only about $ 1,400 in new bonds to push many of these people short of money.

Secondary jobs might not help

So why not just look for an extra job to help make ends meet? Some people are looking for concert jobs – and new mobile phone applications make it easy to quickly find work in the short term.

"But it's not that easy if you're a single parent and you have to pay childcare fees and that your car is not always very nice," Sullivan said. "The supermarket economy is not very welcoming for many marginalized people".

In addition, the amount of time that elapses between the loss of a job and the search for a new one, even if it only remains a few weeks, may be enough to cause some damage, while so many people live paycheck.

"The low unemployment rate does not mean a high job security," Walker said. "Of course you can go out and find another job, but if you do not have savings, the gap period becomes catastrophic."

MORE: How to find short-term jobs with a faucet on your phone

Friends and parents, beware

Money-strapped people who can not or do not want to borrow at high interest rates sometimes ask for help from family members or friends. It can also be dangerous if the person does not pay back the money.

In addition to risking their own money, family members or friends who lend money or co-sign a loan may have their credit score damaged if payments are not made on time.

"This can make the financial fragility of someone a contagious one for others," Walker said.

If you find yourself looking for friends or relatives for money, this could be a sign that you have left the middle class.

Contact Wiles at [email protected] or 602-444-8616.

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