The Hard Truth About Credit Scores and Financial Well-Being
FICO Credit Score - Dave Ramsey Rant
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If I had a dollar for every time someone said I need to have a good credit score, I wouldn't be caring about my credit score. For years and years I've heard people making mention of the fact that their FICO score is this or that, and they want to improve it more. And you know something, I bet you likely feel the same way; I know I did for a while.
Since I've started listening to Dave Ramsey, I realized that the FICO score is not all it's cracked up to be. It's not something that indicates how healthy you are financially. It is not something that shows you are on the path towards prosperity. In fact, it probably means the exact opposite, as Dave explains.
A FICO score is not an indicator of financial health. It's not an indicator of a big income. It's not an indicator of a big net worth. It's not an indicator of a big investment portfolio. A FICO score is an indicator that you've borrowed money and paid it back a lot. and the higher your FICO score it means the more you've done this over and over and over and over again.
Another way he often puts it is that the credit score is an "I Love Debt" score. The score shows your relationship with debt, not your ability to produce wealth, nor your current level of wealth.
Your aunt could die tomorrow and leave you ten million dollars; you know what that would do to your FICO score? Nothing. Because your FICO score is not an indicator of your net worth. Your boss could walk in this afternoon and raise your income to a million dollars a year; you know what that would do your FICO score? Nothing.
If your FICO score is a perfect 850, it means you've taken on a lot of debt and paid it back (with plenty of interest added on to it, by the way). But what does your checking account look like? Your savings account? 401k? The score tells nothing about those factors of finance, which actually paint an accurate picture of one's financial well-being.
Yet the myth still persists that a good FICO score is needed to live life. If you want to buy a car you need a good FICO score. Not if you pay for the car up front (and get a steep discount for it in the process). If you want to buy a house you need a good FICO score. Not if you choose a mortgage company that knows how to manually underwrite the loan.
Unfortunately, many places like apartment complexes will require a credit check to approve residency. But Dave pointed out that such logic is simply dumb, and he used himself as an example (the multi-millionaire that he is).
I don't have a FICO score but here's how stupid our culture is. I can wander over here to the local apartment complex with some little 27 year old apartment manager who reports to somebody (I live in Nashville and they report to somebody in New York or in Atlanta) and I fill out an application for an apartment, and because I don't have a FICO score, their thought train is so backward and stupid they won't rent me an apartment.
Now I can write a check and buy the whole freakin' complex, but I can't rent an apartment there. See that's how stupid this is and how culturally backward it is?
Bottom line: a credit score does not mean that you are doing well financially! This perspective is important to have because it changes the way you treat money. If all you want is a good credit score, keep borrowing money and staying in debt. If you want to be wealthy, get out of debt and start paying yourself instead of the banks. It's that simple folks!