I'm gonna be straight with ya'll. In the past, I was a Dave Ramsey-ite til debt we did part. I followed every word he said (mostly....all that Bible stuff was readily ignored, if I'm being honest). Hell, I even named this here blog after a D-Ram ideal.
D-Ram was never big on the almighty FICO score. He advocated no debt what-so-ever so, eventually, your FICO score would be non-existent. And, in THEORY, this is a pretty decent idea. After all, if you are paying cash for everything you don't need to prove a strong credit history in order to borrow money.
HOWEVER, and this is a big fat HOWEVER, it's not terribly realistic when you get down to the brass tacks of it all. Especially in today's economy.
So, let's dive into the highs and the lows of FICO score awareness, shall we?
First things first, what IS a FICO score anyway?
If you're over the age of, say, 21....or in your thirties and married and stuff and have no clue WHAT a FICO score is and what your's is....oh man, sit down my friend.
Love 'em or hate 'em, it's definitely something you should, at the very LEAST, be aware of.
FICO stands for Fair, Isaac and Co (creators of said score). The company specialized in data analytics (which contrary to popular belief or any other opinions is the most interesting of all maths....and the only math I ever did well in). The FICO score, a score to measure consumer risk, was unveiled in 1989. So, in the grand scheme of things, it's not really an old standard. Rather, it's become THE standard.
FICO scores take a look at your credit history (how much money you have borrowed) and assign a score from 300 to 850, which is supposed to show how much of a "risk" you are to borrow more money to.
FICO uses your payment history, amount of debt, types and length of credit usage as ways of compiling your score. Surprisingly, over half of people analyzed had a credit score of above 700 in 2017. I honestly expected that number to be worse, given the burden of debt most people carry. But here's the thing, it has little to do with HOW much debt you have....only how on-time your payments are and your debt-to-income ratio.
This is how people get in trouble with debt. Even if they have a crap-ton of it, they can still have a very favorable credit score....and banks will still be apt to loan them more money....making their debt burden worse and so the circle continues.
When we went to get our mortgage, we were both praised for our unusually high credit scores. Yes, I was that annoying asshole who stopped the bank lady and told her NOT to praise us for anything, it was just an "I Love Debt" score and nothing more. (Side tip: if you are snowballing your debt and paying things off like crazy, your FICO score apparently spikes).
I'm surprised they still gave us a mortgage, being what a twat I was.
But, there's some truth there. All a credit score REALLY says about you is that you like to borrow money and you're either good at paying it back or you're not.
Still, your FICO score is used to determine all SORTS of things: whether someone will rent to you, whether you can purchase a home or a car, even some jobs will run your credit to see if you are a person who is trustworthy....or...something.
At one point, my goal was to completely eliminate my credit score. We are not there yet, obvs, but maybe someday I will be 100% debt free long enough to make my credit score obsolete. It's a rarity, but D-Ram says it can be done and hell, I believe him. It's my white whale.
In the meantime, however, it's important to keep that score healthy enough to secure the mortgage for our new home (done) and now that we have that well in hand we can start focusing more on eliminating the need for it ever again.
Because if you're willing to pay cash for EVERYTHING....your need to serve at the altar of FICO vanishes.
Think of how nice that would be....to no longer have 3 little numbers control your life.
Think of what that will look like....
The only real need you may have for a FICO score is to take out a mortgage. Getting a credit card is out of the question, right Gazelles? Buying a car? Typically not an emergency....so keep saving for your hooptie that you will get to drive until you are debt free.
But, if you need to keep your FICO healthy for whatever reason you come up with, here are some quick tips:
1. Keep Your Credit Card Balances Low
Which shouldn't be an issue if you are snowballing your debt and cutting up all the cards anyway.
2. Do NOT Consolidate
FICO likes paying off, not moving around.
3. They Say Do Not Close Credit Cards
If you pay off a card, what then? Well, CLOSING a card you've paid off will (temporarily) lower your credit score. Don't let that scare you. Get those bloodsucking tossers out of your life forever.
4. CHECK your score.
The only way to know if something is reported incorrectly is to keep tabs on your score. You can do this free via CreditKarma. You used to have to pay for that info, which was obvious bulldookie (because we don't pay for enough, right?)
5. Pay Stuff ON TIME
This is really important. The thought of paying bills late is enough to give me itchy hives, but some people make it a way of life. Pay stuff ON TIME. Or, better yet, EARLY.
Good luck dancing with dear old FICO, it's a love/hate relationship with them, for sure. But, if you are determined to be completely debt-free....you need to come to terms with not making FICO as important as everyone says it is. Because for someone who HATES debt, an "I Love Debt" score is useless.