Photo Credit: Adam_T4
Credit reports and credit scores are useful tools for those interested in estimating the credit worthiness of others. Many of us have worked hard to establish credit and keep our scores in the upper range so we’re viewed favorably. This indicates to others that we’re a good credit risk. It’s an important accomplishment because we know that having an undesirable credit rating can: adversely affect our ability to get a loan; result in being declined an offer of employment in certain job sectors; prevent us from qualifying as a tenant; and, interfere with being issued a security clearance. It can also affect our insurance rates. So, it’s understandable that many consider credit worthiness to be of concern.
Nevertheless, to some of us, a credit report isn’t a concern at all, no matter what the score may be. And, it never will be. What? Hold the phone! There are people who don’t care about their credit score? Yes, some people like me aren’t concerned in the least about their credit score. I suggest you re-evaluate your perspective on credit reports as well. Here are three big reasons to do so.
Reason #1 – Some Can’t Handle the Responsibility
Having a good credit score means you’re credit worthy, and that means you’re offered credit cards and encouraged to acquire things now and pay for them over time. Generally, that type of consumer-oriented approach gets people into trouble. As Clint Eastwood’s character so often reminded us, “A man’s got to know his limitations.”
If you’re the type who can’t handle credit, then it’s the last thing you need. So, unless your credit score is interfering with other aspects of your life, then I suggest you stop trying to elevate your score, and start being more concerned about changing the behavior that your score reflects. For the financially irresponsible among us, success and happiness won’t come from a better credit score, but it will most surely come from more responsible behavior in the financial arena.
Reason #2 – There is So Much that Credit Scores Don’t Reflect
An associate of mine has been a “cash only” buyer her entire life. She and her entire family have always operated on a nearly cash-only basis. If one would look at her bank balance, it would be clear that this hard working individual is successful with respect to money management. How does a credit report reflect responsible cash only spending? It doesn’t, simply because it’s a credit report and not a cash report.
I used to have a mortgage, but I don’t anymore. When I purchased the home I have now, I paid nearly half down, and promised myself that the 30 year note would be paid off in five years. Instead, I seized an opportunity and paid off my mortgage in three years. To the average individual, this would appear to be the sign of someone who is especially savvy in terms of personal finance. Only a responsible individual would focus on making sufficient money to be able to save up such a large down payment, and then make the dream of living completely debt-free come true by paying off the mortgage in short order.
I estimate a savings of at least a couple hundred thousand dollars over the life of the loan by taking this approach. Nevertheless, none of this financial success and responsibility is reflected in my credit report. I’m given no points for having saved up a substantial down payment, and no pat on the back for making good on repaying the loan. Instead, the reports states that the loan wasn’t held long enough to be meaningful with respect to my credit rating.
Reason #3 – The Game is Rigged
Using the example above, those who score my credit were sending me a signal that if I wanted to have my appearance of credit worthiness increase, then I should have held onto my mortgage longer and “paid my dues” to the mortgage company. In other words, I should have played their game the way they had set it up for me to play. Of course, that would have cost me years of interest payments, and I think that’s too high a price to pay for a better credit score.
Does your credit card company keep sending you “checks” so you can write yourself a personal loan? Mine does. Clearly they’re not satisfied with my purchasing habits and would like to encourage me to get deep into debt so I start paying over time instead of every month. Their interest is to put a financial shackle and chain around my ankle so I’m enslaved to them. They even regularly encouraged me to “skip a payment.” It’s clear the credit card provider is eager to get me into bad habits. It’s all part of how they rig the game so you become a life-long player.
Lastly, I’m considered a “dead beat” with credit card companies simply because I don’t let anything ride over to the next month. My card is paid off in full each month. Despite increases in my authorized limit, offers to write myself a loan, and other rebate gimmicks to get me to spend more, I don’t ever elevate my spending habits. They’re only offering me more financial rope with which to hang myself, and it’s just not part of my play book.
The Bottom Line
Having credit is a big responsibility, and some of us just can’t handle it. If you’re one of them, then stop being concerned about your credit score and start paying attention to your behavior. Your good behavior is more influential with respect to a better financial outcome than any high ranking score on a credit report.
Credit reports are produced with a decided bias against good conservative financial management. Instead, they’re skewed in favor of long term risky behavior that provides a source of income to those who extend credit. And, much of what you do, that is indeed financially responsible, isn’t even captured on the report.
From my perspective, the credit game is rigged, so I simply refuse to play. I don’t care what my credit score is. I’ve been completely debt-free since 2005 and have no need to ever buy another home. I’ll never have the need for a personal loan, and the credit card that I have works just fine as a convenient means of paying for things.
My attitude and approach may be old school, but it’s something that works quite well for me. I’ve never known anyone who works on a cash-only basis to get in over their head, so I’m sticking with that approach. It’s hard to argue with success, and I’m not the least bit inclined to “fix” something that isn’t broken – no matter what the numbers and remarks on my credit report may suggest.
About the author: Clair Schwan is a managing editor of the www.Self-Reliance-Works.com where wise personal finance and a self directed life are core values of the team. He also hosts www.Frugal-Living-Freedom.com where he encourages readers to live a financially conservative lifestyle with an eye towards self sufficiency. He lives with his sweetheart Ellen on the high plains of southeast Wyoming.
Peter, great observations and current data points. The system of credit scores are in many cases there to encourage you to engage in use of credit. It’s the credit industry promoting their own business of hooking others into a life-long service to them. It’s time we rethink all of this and start serving ourselves first and foremost.
Clair Schwan
And the credit industry is very VERY good at thinking about future sales. I would call them marketing EXPERTS. They have been overwhelmingly successful at getting people to follow this credit score mindset. Not only that, they have done so with little to no fight—until Enemy of Debt came on the scene. LOL
I do find it quite interesting that your credit report doesn’t really reflect how well you manage money or how well off you are. In fact it just shows how well you use credit, how much credit you haveand how good you are at paying your debts. If you don’t take on new debt or use credit at all, you’ll have a zero score and not have much luck getting a loan. Because you’re a bad risk? No – because you don’t use credit (and you could argue are more responsible with your money).
I just checked my credit score at credit karma last week, and we have almost an 800 score. The site suggests what you can do to get even better credit. My suggestions were basically to use our credit accounts more often(we only have one credit card which is rarely used.), and to take on new credit. Go figure. No thanks – i don’t love my credit score that much. Now that we’ve got a house we don’t really need it any more.
My thoughts exactly Peter. Right now I show nothing in the credit scoring system. Some would classify that as a bad thing but I am not bothered by it one bit. The biggest thing I hear, is even if you don’t borrow money you can’t rent a car, or an apartment…blah, blah, blah. If I need to rent a car, I can use my debit card. When we get out of this house and start renting, I will bring a copy of my emergency fund statement. The truth is we could probably get a card to use and pay off each month, but we just don’t see the need to right now. We haven’t borrowed a single cent since 2008, and really have no intention of ever doing it again. To me, the only reason I would truly NEED a score is if I planned on borrowing.
House – Cash only. Car rental – Debit. Rent – Prove I’m financially responsible. Job – I work for myself. Insurance – I have had no problem yet, when I do, I’ll cross that bridge. If an insurance company chooses to ignore my proof of financial responsibility, I’ll choose another insurance company. 🙂
Very good info! People need to stop chasing the good credit rating because all it shows is that you are good at managing debt.
The credit score doesn’t reflect the real financial situation of the person. We’ve seen over the past 2 years people that had good credit but they were using credit cards and refinancing their homes to stay above water.
Now we’re seeing manual underwriting for high ticket items and this will actually show if people can afford what they are about to buy.
It’s almost as though the higher credit scores are really big flashing neon signs pointing down at people and indicating, “These are the ones that can handle debt, so let’s load ’em up!” The highest scores shouldn’t be known as excellent credit ratings, they should be known as ratings in the “sucker” zone.
Clair Schwan
I love #2 and #3 here.
I think credit scores are a joke. While they can be accurate at times, other times they don’t tell anything about the person. I hate the fact that someone who pays for everything in cash, or might have only 1 credit card but is very disciplined and therefore doesn’t use it for a lot might not have a high credit score. Instead, a credit card company would prefer you to have 100 credit cards open (with no debt) because you’ll have so much unused credit available. It’s so cryptic.
And I agree that credit card companies want to get us in a bind to be in debt to them at super high interest rates. It’s that mentality that caused such mortgages to be easily given to high risk buyers, and approved credit cards for people who had no business owning one.
Speaking of 100 credit cards, I remember many years ago listening to a radio interview with a gent who had a hobby of collecting credit cards. He remarked that he had nearly every credit card issued in his day except one – a small “five and dime” that issued their own credit cards. Even though he explained that he didn’t use the cards, just collected them, they refused to issue a card to him simply because he had too much outstanding credit. Apparently that was back in the days when individual responsibility meant something.
Clair Schwan
I wish this “individual responsibility” was still encouraged these days!
Me too Andrew! This generation seems to be all about entitlements! \”What can I get without earning it myself\” It\’s a shame!
Has anyone noticed that credit (debt) is our country’s path to Bankruptcy.
Grandpa never had a Visa, Papa never had a Visa, Son has a Visa Debit.
We did with out, working for modest incomes.
“Live like no one else, so later you can live like no one else.” Dave Ramsey
When they try to push Retail plastic, I say I have a BBD.*Cash
“Bigger Better Deal” Dave Ramsey
I agree that the credit game is entirely rigged. I also do not bow down to the great credit score alter. I feel sorry for people that think that a high number will reward them.
I believe in not becoming a slave to the lender to include a credit score. Instead of credit score it should be renamed “sucker score.”
LOL Yeah that or the \”I LOVE DEBT SCORE!\” as Dave Ramsey would say. I usually put it like this. I am going to work my financial plan, and if that means my credit score suffers because I choose not to \”build my credit score\” then so be it. Where I am headed I do not need a credit score! 🙂
Oh boy have I been thinking about this very same thing. I’m in the same boat in that the whole Credit Score game is a game I don’t want to play. After too many bad experiences with Creditors, I’ve resolved to never wanting to finance anything ever again. The way I see it, if I can’t pay for it in cash then I just can’t afford it. Period.
I understand that a House is different. Which is frustrating. But because I already own a home I don’t see the need for getting another one. So i’m staying out of this Credit Score game for good.
I have stopped playing the game and my life is just grand. Anything that a person wants to own, can be bought with cash by saving and lots of hard work. Even for those that don\’t want to take the time to aggressively save for a home, financing can be done by manual underwriting. It\’s not popular, mostly because the credit system has taken over, but it\’s how they used to do it before the credit system was in place.
Good for you btw! There\’s nothing more liberating that realizing you don\’t NEED something or someone to have a nice life. 😀
I love these people that “Want a good credit score! ”
Suckers…Look at this game… “If you search for several lenders for a loan that lowers your credit score” What a bunch of non-sense. So, the message here is that you dared to find a competitive rate? you dared to find the best lender? Oh the shame… toddler hand spank.
Look at the game…. ” If you don’t keep up a credit card balance, your credit score will be lowered “… Translation, we will punish you for not paying interest on a loan you don’t need to keep up.
Look at the game… ” If you don’t take out loans, your credit score will be lowered “… Enough!!! The heck with your stupid credit score… Give me a credit score of zero. I own my house, own my car, have no debt in my life. If in some twisted logic, that makes me financially irresponsible, go mail out another credit card to an over-maxed guy that makes payment on $250,000 of debt with a $70,000 income that has a high credit score ( they pay a lot of debt on time ). I guess that other guy has a higher credit score… Bye Bye!
John, you clearly see the manipulation, and once you have that figured out, it’s much easier to work out ways to avoid being manipulated.