As a Financial Coach, I have to help my clients battle the constant barrage of mixed messages about credit that rule the financial industry. Most Americans spend hundreds of hours researching credit card offers, reading articles about building their credit, and managing different accounts to maximize their utilization rates. Have you ever stopped to consider the rules of the game and who your opponent really is?
The birth of Credit Scores
Retailer’s Credit (now Equifax) started collecting information about consumers in the 1950′s. It gathered data from your friendly neighborhood Welcome Wagon representatives. Can you imagine that? We were being judged on home furnishings, how well we were dressed, and someone’s opinion of our character.
Actually, the old way was more accurate
Despite all the bias and opinions, predicting your ability to pay your bills was more accurate back then than the credit scoring system is today. That is because credit was not widely used 60+ years ago so most of the things our grandparents had were paid for. The nice couch, the vehicle, even the grand piano was an asset – not a liability. In those days you were more likely to have money than the Joneses of today who have a negative net worth because they owe on credit cards, car loans, and probably have a family member to pay back once they “get back on their feet”. The Joneses may have the stuff, but they don’t own it.
An X-ray of your credit score
Every component of a credit score is based on debt:
- 35% is based on credit (debt) payment history
- 30% is based on the amount you owe (debts)
- 15% is based on the length/age of your credit (debt)
- 10% is based on new credit (debts)
- 10% is based on the types of credit (debt) you use
Notice the word “credit” is substituted for debt in every aspect? I think the guy who coined the name “Life Insurance” also renamed our Debt Score with the word “Credit” – like putting lipstick on a pig.
FICO is unfair
Everyone should have a good FICO score – simply paying your debts and non-qualifying bills on time can do that. What are non-qualifying bills? These are things like your electric bill, your car insurance, even rent payments – none of which are debt accounts. However, this is how stupid the FICO scoring system is: Pay your cell phone bill early or on-time every month and your FICO score will not improve one bit, but miss a payment just once and watch your score dive. How one-sided is that?
I’m tired of being misled
I’m tired of being misled with the promises of a brighter tomorrow due to the commands of a faulty indicator. Credit scores were originally a way for banks to measure how much risk they wanted to take when approving a mortgage or business loan. Fast forward to today and you can see how it has become a game where everyday consumers try to score a larger three-digit number than their co-workers and brag about it at cocktail parties. Many financial “experts” push this prattle as if it is going to help you succeed financially but all they are doing is encouraging people to get into debt and stay in debt for a very long time. No thanks, I’d rather keep my money than pay the interest.
Did I burn a bridge?
I haven’t had a credit card for over 5 years and have 41 payments left on my mortgage. I’m almost done with debt completely and we’ve been able to shovel cash into retirement and savings accounts for our daughter. The finish line is in sight. Have I burned the bridge by eliminating credit from my life and weakening my credit score? Hardly. I could change my mind in an instant and go back into bondage – and there are plenty of companies to lend a willing hand:
- Delta, Shell, and Chase would LOVE to sell me their credit cards
- Bank Of America would LOVE to sell me a “low interest rate” HELOC
- Thousands of dollars in student loans are offered to people who have never held a job and have no credit history. Surely I could go back to school today on federally subsidized money!
There is no shortage of people who want to sell me their debt products and charge me interest for the opportunity.
The better option: eCredable
The only way I’ll ever go into debt again would be for a mortgage, and we’d make a plan to pay that off as cheaply and quickly as possible too. How is that possible without a bloated FICO score? Simple: eCredable.com.
This company simplifies the process the mortgage industry coined as “shoebox credit”. eCredable takes into account ALL my payments, not only debts, and can prove to any lender that I have a flawless history of making payments. It’s a better option that accomplishes everything the FICO score touts as “benefits” on their website, but without the soul-sucking debt.
This is information that many people do not know about, and it’s real! Please share this with everyone you know and help them encounter a new world order that doesn’t push them towards being broke.