I’ve come up with a new motto: “Say NO to FICO, I’m working on my DEBIT SCORE”.
FICO is the company that collects consumer credit data. They are in the business to sell this information to individuals and companies and offer to sell it to you with your “Credit Score”. How is a credit score evaluated?
The components of a credit score all have to do with borrowing money: credit cards, car payments, and other types of loans. So a credit score, as Dave Ramsey puts it, is an “I love debt score”. The more you borrow and pay back on-time the better your score. But the more you borrow and pay back on-time the more interest you pay, that’s how credit works. It has nothing to do with how much you make or have saved. You can be a millionaire and have a zero Credit Score.
For the past 3+ years my wife and I have been debt free (except for the mortgage) and I cut up my last credit card 4 years ago. Once I committed to living without plastic I found it rather easy to pay for everything with cash or my Debit Card.
The advantages:
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I’m not paying interest (except for the mortgage) and paying cash for everything so we are keeping more of our money.
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Without all those loans and credit card statements floating around I have less chance of someone stealing my identity.
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Paying bills (lights, phone, internet, etc…) is MUCH simpler.
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Paying cash, or using a Debit Card, makes you think twice about purchases, which has greatly reduced the “buyer’s remorse” I used to get when buying something on a whim and later regretting it. There are things in the attic I bought on credit that I can’t remember the reason for purchasing.
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I don’t have to scour a credit card statement for incorrect/fraudulent charges. Most people don’t even look at them and could be paying for charges they didn’t approve. I just balance the checkbook monthly and know instantly if there are any problems.
The disadvantage:
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Certain insurance companies use credit scores to rate you, so car insurance could be higher.
I don’t want to work on my CREDIT SCORE, I’m going to say “NO” to FICO and work on my DEBIT SCORE!
Note: You should review your credit REPORT (score not included) on a regular basis. Watch my video-tutorial on how to get your report for free: http://www.moneyplansos.com/vid-torial-annualcreditreport/
“But the more you borrow and pay back on-time the more interest you pay, that’s how credit works.”
This is not true. I’ve been using credit cards for over 40 years, and for the past 10 years or so I’ve used them for all purchases/expenses that can be put on a credit card. I have accumulated approximately $12k in $$ back in the form of cold, hard cash. I haven’t paid one penny in interest, penalties or fees of any kind. I do not spend more because I’m using a credit card instead of cash. There’ve been several bad purchases (defective merchandise) over the years where I’ve been able to strong-arm the retailers in to taking returns against their will because I had paid with a credit card, so I had all the power while they had none. Had I paid with cash or a debit card, I would’ve been stuck with items that don’t work properly. Credit cards are wonderful financial tools if you know how to use them and know how to handle them.
That’s great that you have paid off your credit card bills every month, but have you considered any “impulse” purchases made or the possibility that you may have given yourself permission to buy something you normally would not have because of “points”? I know this is happening because I do it to. My bank’s Debit Card gives cash rewards back on certain purchases, one being gas at a major gas chain. I have found myself choosing the major chain over others for the “points”, and have occasionally found myself paying 1-2 cents more per gallon. It’s only a few cents per tank, but it explains my point.
As far as the defective/bad purchases: I would urge you to read a post about the protections Visa gives (which includes links) for both Debit and Credit cards – it is the same and Visa doesn’t know the difference between the two. http://moneyplansos.wordpress.com/2009/12/01/is-your-credit-card-safer/
My financial tools are not dependent on loans and lenders. My financial tools are savings accounts, mutual funds, and retirement plans. What’s in your wallet? Money.
Thanks for the comment!
Love your honest evaluation of living without credit. Another disadvantage is it will be harder/most expensive for you to borrow money in the future… Oh wait, that’s a GOOD thing! 🙂