Last month, The Minimalists did a podcast on debt. That podcast led to a profusion of tweets about the drawbacks of credit scores. In fact, the underlying message–ripped out of Dave Ramsey’s playbook–was that no one should want a credit score.
The Minimalists by way of Ramsey tweeted out that a credit score is nothing more than an I-Love-Debt score. If you don’t love debt, you don’t want a credit score. At all. None. Nada. Zero. It sounds absurd–and it is–because a credit score in-and-of-itself doesn’t cause the debt problem. By their logic, I should throw away my mirror if I don’t like my hair. I should get rid of my scale if I don’t like my weight. And I should probably disregard those wellness screenings I get every year. Those warning lights on my car dash? Apparently, my car can’t have problems if warning lights don’t exist.
The reality of a low credit score is that it reflects a small slice of a vastly complex conundrum, just like a check engine light or a thyroid test result. It is one piece of someone’s overall financial health. It’s not the only piece, nor is it the most important piece. But it is a piece nonetheless. So let’s not ignore it, okay?
Instead of thinking of a credit score as an I-Love-Debt score, I think of it as a Make-Money-Work-For-Me score. Money is a tool. Learn to leverage it. A healthy credit score matters. Not convinced? If you ever plan on doing any of these things, someone is probably going to take a hard or soft look at your credit score:
- Buy a home.
- Rent an apartment.
- Take out a loan.
- Employer background checks.
- Set up utilities, Internet, or cable.
- Rent a car.
- Open a bank account.
So credit scores do count for something. Of course, if you can pull a Dave Ramsey and pay cash for your mega mansion, you don’t need a credit score. But for the average person, having an understanding of credit is important because it plays a role in establishing a financial foothold. Saying it doesn’t either speaks from a position of ignorance or privilege. And if Ramsey is the financial guru he’s lauded as I’ll let you decide which camp he lands in. While it may be true that you can work around credit inquiries, why put someone in a position where they have to learn to do that?
Besides possibly needing a credit score when establishing yourself as a homeowner, renter, employee, or TV binge-watcher, a high credit score can open a lot of doors for people. If we’re going to teach financial fitness, let’s share all the possibilities. Let’s not limit people.
Here’s a short list of ways in which I’ve put my credit score to work:
- Financed my Master’s degree and wedding with 0% cards – hello, bonus points!
- Travel hacked my way to cheaper vacations
- Qualified for a better mortgage loan rate to the tune of .50%
- Financed a car for 0% – gasp, I know!
And I’m sure there are all sorts of other ways that my credit score works on my behalf that I haven’t even stopped to consider. The fact of the matter is debt is a problem, but credit scores are not. Like most things finance related, with a deeper understanding, this is one more tool that can put money to work for you.
So Tell Me…What do you think of credit scores? Have you ever put yours to work for you?
This is so true – and I’ll add another point, insurance rates. And yes – they can and will check your score too. Avoiding credit doesn’t teach you how to manage it – and isn’t that our goal? Having control over our lives and understanding money and how and when to spend it wisely? We just paid for college tuition for my daughter on a credit card (no fee to use it through the college) and got $180 cash back (on a no annual fee card). Paid it off with 529 plan money – that saves us in taxes. I’ll take the cash back. We also just took money from a credit card (at 3% fee – 0% for 18 months after that) to pay down a mortgage of almost 6% on a rental house. We’ll pay it off next year – but doing the math, we saved thousands of dollars in interest for a $600 fee. (Yes, this will lower our credit score for the year – but we have all our rates locked in place too and aren’t looking for jobs, mortgages – or anything else you described.) I respect Dave Ramsey for a few things, but not the “no need for a credit score” idea.
Having had a bad credit score and bad credit, and then turned it around, I have a lot of appreciation for having a good credit score and good credit. In addition to all of the other things you mentioned, a good credit scores also will lower your insurance rates. And having a credit card will keep you from having to fork over rather hefty cash deposits for things like vacation rentals, which can sometimes take weeks to get back.
I absolutely agree with you penny! I do think credit scores are important. While, I have not had to use mine for something like a house, it has helped me do some travel hacking, have a small deposit to set up my utilities, and no security deposit on my apartment.
Completely agree. In an ideal world, credit scores wouldn’t be needed for anything other than determining your ability to pay back a loan, but that’s not the world we live in. As you’ve stated, a good score is required for any situation where money is involved.
It’s appalling to me that employers pull candidates’ credit scores. Unless the job is financial, I don’t see how there’s any relevance especially with how financially ignorant we are as a nation. Even then, I’d be curious to know how strong the correlation is between a high credit score and competence to do a certain job.
Unfortunately, sometimes you just have to play the game….
Completely agree with you! Although credit scores don’t need to be the end-all-be-all, they are still necessary when making certain purchase. My thought on credit scores is keep it high (do what you can to increase it), but don’t check it continuously. Trust that your financial decisions are helping it and move on. My wife and have worked to build our credit score through appropriately managing many credit accounts including credit cards, a mortgage for our house 4 years ago, and most recently a car purchase. It has been vital to receiving the best rate possible for us.
YES. This is so true. When I heard the “I-love-debt-score” thing, I was kind of baffled. True that your credit score shouldn’t run your life or be the be-all-end-all of financial benchmarking, but really, like you said – if you’re the average person, not a Dave Ramsey, then your credit score is a diagnostic tool just like anything else. The fact that my husband and I both have great scores is one of the reasons we got a great rate on our mortgage too. It’s also part of why we are regularly pre-approved for lines of credit or credit limit increases. We rarely partake, but if we needed to, the option is there in large part because of the credit score. Thanks for this voice-of-reason post ; )
Definitely agree that credit scores are important. My wife and I have leveraged our 800+ credit scores to get a low mortgage rate, great insurance rates, a near 0% interest car loan (which will be our last car loan), credit cards that provide excellent rewards, bank accounts that provide certain bonuses, and more. If you’re responsible with your credit, there’s no reason that a credit score needs to be an I-love-debt score.
Such great analogies! I know we all wish we could throw out the scale, but that’s not the best plan. 🙂 I agree with you — there are plenty of important non-debt ways that credit scores impact us, from employer checks to utilities, and I know that having excellent credit has saved us LOADS of money over the years. We don’t love debt at all, but we do love air miles from credit cards, and we love not paying a deposit on our gas and electric bills!
Very odd point of view from Dave Ramsey, if people do what he preaches their scores would rise as debt falls regardless – it can only help to have a high score.
I really like the travel hacking example – if you pay your credit card on time every month you could 0 debt and an 800+ score with little effort.
I like Dave Ramsey because I think his “Snowball” can be effective for a lot of people. BUT… This no credit score thing is a load of bullshit.
I love credit. It’s opened up a lot of doors in my life – and our credit score is why we have the things we have – and will be able to get the things we need in the future.
Nicely done!
Kudos to you for opening doors with your credit score!
I am actively working towards making my credit score the best it can be. It signals to others that my finances are in order and opens me up for a better mortgage rate and the chance to have balance transfers and 0% APRs to work in my favor. I don’t do anything risky to improve my score. I just pay down debt and pay off the balances on the reasonable basis. Not a bad thing at all.
At my workplace, we screen potential employees on criminal history and credit score. If they have a felony, they’re dropped. And if they have a credit score below a certain threshold, they’re dropped too. I’m a big fan of Dave Ramsey but I think he’s wrong when it comes to the importance of and the desirability of having a credit score. Heck, I even think your auto insurance premium is partially based on your credit score. Great post, Penny. I’ve been completely out of debt for over 10 years now, but I never leave home without my Make-Money-For-Me score.
I think I just broke 800 FICO and never used it! No mortgage or car payment. I’ll have to finance something soon.