FICO says what’s in your credit score
FICO says your credit score is based on the length of credit, new debt, the variety of debts, how much debt you owe, and your payment history on debts.
In short, you need to borrow money for a long time. More than likely you will end up paying interest.
I’d rather be paid interest than paying it.
What is not included in your credit score
What is not included in a credit score is your age, sex, religion, and where you live. These things are left out due to consumer protection laws that were passed to keep lenders from being biased or discriminatory.
The problem with a traditional credit score is that it is selective on what to include in the calculation of your credit score and is not a fair representation of your full financial picture.
Why wouldn’t these things be included when calculating your ability to repay a loan?
- How long you have been with your current employer
- How much you make
- How much you having in savings
- How much you have in assets that you own
- Your payment history on non-debt items like rent, cell phone, or your cable bill
Why aren’t these things discussed at the level of a 3-digit number? It is those who promote “building your credit score” that make it sound as if it is the most important thing you should work on.
I disagree. Credit scores are a distraction from building wealth.
Results from my debt free survey
I asked individuals to respond to a quick 8 question survey. Click here to see a screenshot summary of all the questions
Of the 83 survey respondents:
- 66 are Married (80%)
- 1 Widowed
- 6 Divorced
- 10 never married
100% have been approved for a credit card. No surprise there.
11 of 83 respondents (13%) have never taken out a car loan.
77% (64 respondents) say they do not have any outstanding consumer debt, 26 are completely debt free.
Of the 26 completely debt free respondents, 9 stated their debt free date was over 5 years ago. All of them had a score greater than 700 except for 1 who said his score was ZERO.
Only 2 of the 83 respondents who have paid off all their consumer debt indicated their score was 699 or less.
Are they worried about their credit score?
8 of the 9 replied “No” to being concerned about their credit score and two of them actually responded with “Not At All” concerned.
Only one was concerned about his Property and Casualty insurance rate being effected by a non-existent score. As I explain in the podcast recording, this really shouldn’t be a reason to stay in debt or build your credit score.
Why should they? They don’t need a score to tell them they are winning with money.
Other credit score excuses:
I need a score to rent an apartment: Devin Czech asked landlords if he could rent from them even though he doesn’t have a credit score or credit history. The responses are very encouraging: http://payczech.blogspot.com/2014/01/renting-with-no-credit.html
Employers look at credit scores: An employer may pull your credit history before offering you job. However, if they use your SCORE as a determining factor of your eligibility then I would question their hiring practices.
Yes, bad credit is an indication of past financial problems but having no credit history is an indication that you’ve stayed out of debt and are financially responsible. Who wouldn’t want to hire you?
I will go further in saying any employer who does not hire someone simply because they don’t have a credit history is not a very good employer.
What happens to my credit score when I pay off debt?
The conventional advice is that your score will drop or disappear when you pay off debt. However, according to the survey people who have been completely debt free for more than 5 years still have a great credit score.
If your score did go to zero you can use alternatives to help qualify for a home loan. One such service is eCredable. They evaluate ALL your payments, not just the debt products found in a traditional credit score.
Get mad at your debt so you can get even
The everyday American is the lowest common denominator when it comes to knowledge about credit scores - and they are the target as well. Don’t play credit score games. Instead, do what’s smart and get out of debt.
Here is something you can do right now to motivate you to get started:
- Gather together all your debt statements (credit cards, car loans, student loan, mortgage, etc…)
- Add the total of all interest paid last month
- Divide that total by your average hourly wage
How many hours do you have to work just to service the interest on your debt? Get mad at it so you can get even! Your checkbook will thank you.
Want to get even with your debt? Learn how to create the absolute simplest budget that works: http://MoneyPlanSOS.com/START