Your credit score doesn’t make you cool

January 17, 2012 · 42 comments

I want to both cringe and laugh uncontrollably when I hear someone tell me how “high” their credit score is. I put the word high in quotes because it is a completely subjective term. Most people start getting pretty proud around the 700 mark, and once they breach 800 it seems they want to shout their score from the roof tops. Sorry to burst your bubble peeps, but your credit score doesn’t make you cool.

I honestly have no idea what my credit score is. I’ve never checked it. I use to have student loans and a car payment, and I currently have recurring credit card accounts. I have a pretty good track record of making my payments on time so I’m gonna take a shot in the dark and assume I have a pretty okay score. You can get a free credit report score by doing a quick google search.

Do you know what the primary purpose is of your credit score? It tells lenders how likely you are to make your payments on time and pay back all that you borrowed. The higher your score, the better rates you get. Pretty straightforward stuff.

But what if you don’t like borrowing money? What if you are going to pay cash for your next car? What if you don’t care what the interest rate is on your Credit Card because you pay the bill in full each month? Hmmmm, suddenly your credit score becomes exponentially less important.

Instead of thinking you are super cool for having a high credit score, maybe you should be asking yourself why you even care? Are you really that excited about being deemed “qualified” to take on more debt?

Don’t get me wrong. I know the difference between a 6% interest rate and a 4% interest rate on a mortgage will save you tens of thousands of dollars over the life of the loan. I’m not at all trying to say people shouldn’t care about paying their bills on time, of course everyone should do their best to be fiscally responsible. But instead of manipulating my spending habits in hopes of them having a positive impact on my credit score (by doing things like taking on a car loan), I’d much rather pay cash and not even have to worry about it.

Long story short: I will NEVER, EVER, EVER put myself in further debt just for the sake of improving my score. And personally, I don’t think you should either.

We’ve allowed the credit score to become far too important in the way we evaluate one’s character (people can actually get denied employment because of a poor score). So today I take a stand and say “Bite me FICO score!” I’m not changing a darn thing.

Are you with me!?  Do you know people who appear to be pretty proud of themselves for having “great” credit? Do those people make you want to cry inside? Do you care about your credit score?

{ 42 comments }

1 Melissa

You’re actually a bit off with your description of the purpose of a credit score. It’s not only to show lenders how reliable you are. It was originally conceived as a marketing tool to show lenders how much money they can stand to make off of a particular borrower. So the most attractive person to a lender (thus with the highest credit score) is going to be someone who consistently maxes out a high-balance credit card, but never misses a minimum payment.

It’s pretty despicable when you think about it that way. And I’m 100% with you. The importance put on credit scores is ridiculous.

2 Ninja

You are right. It’s a measure of “how good of a slave and credit CONSUMER” you will be. But I disagree most attractive client is one who maxes out card, but makes minimum payment. One of the metrics for credit score is debt to credit ratio. A person who has maxed out their card has utilized all available credit, and banks typically view that as risky (since there is no cushion). Instead people who keep their debt to credit ration under, about 40%, are probably “rewarded” the most.

3 funancials

“So the most attractive person to a lender (thus with the highest credit score) is going to be someone who consistently maxes out a high-balance credit card, but never misses a minimum payment.”

This is false. Maxing out your credit cards would give you 100% revolving utilization which would bring down your score and make you less desirable. Typically the credit bureaus will want to see between 8-12% usage. Anything above 30% will ding your score.

4 Charles

I have 830 credit score and darn proud of it! It gives me extra cushion to apply for additional credit cards when the promotion is good. My score could go down to 760 and still be ok.

5 Ninja

How many CC you got?

6 Kristin

I don’t know exactly what mine is – probably the mid/low 700s. I haven’t checked it in a year or so since I got denied for a credit card for insufficient history. I had about 3.5 years of credit history with a credit card and a few student loans that had been completely paid off by my parents on my report at the time. I think it’s important to stay on top of your credit *report*, especially if you have a somewhat common name, to make sure there are not errors. (My boyfriend shares a name with his dad and his dad’s items occasionally show up on his report.)

I’ve used CreditKarma to check my score as well, but it’s been only somewhat helpful due to my short credit history. But I think it’s a good thing to know, since landlords, utility companies, and employers routinely check credit, even though they aren’t offering you credit. Granted, I have no idea whether that’s a report or score they look at. I try not to do things that I know will hurt my score in case I ended up in a situation where I did need credit (say my car died and I needed a new one), but I don’t get too worked up about it; I can’t affect it too much right now.

7 Ninja

Yeah, like I said I’m all for people being responsible with the debt they already have. By being responsible your score will be default go up. I’m not against people with high credit scores, I’m against people who do things out of the ordinary to try and pump it higher (like they are better than people with lower scores). Live within your means and pay your bills. If you are doing that, everything else will work out just fine, regardless of what FICO says.

8 ParatrooperJJ

On the other hand, if you have a bad score you probably won’t be getting a good private sector job…

9 Michelle

I know exactly what you mean. People are so proud of it and there’s too much of an emphasis on people’s credit scores.

10 slug | sunkcostsareirrelevant.com

Credit score is pretty irrelevant to me, except for times when I need to finance something like a car or a house. I’m now financing my home again. I’ve owned it since Dec 2008. This time my rate will fall to 4%, and it will be a no-cost re-fi (otherwise it would be even lower). This is when I care that I have a good credit score. The lesson is to kind of care most of the time and REALLY care in the year heading up to a major purchase that requires financing.

11 Kevin @ Thousandaire.com

One day I’ll buy a house. I’ll also most likely take out a loan for my next car. For those two reasons, I’m happy my credit score is up in the 780s. Not that I’m bragging about it (but that’s really high, right?) :)

12 Ninja

780…high? I guess if you set the bar low :)

13 Mo D.

We pay our bills on time every month; I know we have a very good credit rating, but I have no idea what the exact # is, nor do I care to find out.

14 StackingCash

I’m guilty, 816 score right now and want to push it higher :) The newest trick I just learned is to pay off your credit balance earlier than the date due and your creditors will report a zero balance to the credit unions showing a better debt limit ratio. One of the most important factors for me to have a high credit score is it affects my car insurance premiums tremendously.

15 SP

In general, it doesn’t matter, but most people buy a house, and for that, it matters. It can save you money.

16 Ninja

No arguing that. But I feel like most people can have a “good” credit score without having to do anything except be responsible. It’s the people that go out of their way to take on new debts, increase their credit limits, open up new cards, etc all for the sake of going from 810 to 830 that I find funny.

17 Larry

I basically agree with you, especially as opening up new cards can loweryour FICO score (though admittedly taking on new credit is not a large factor in calculating your FICO). My feeling is that if you pay all your bills on time and don’t use too large a percentage of your credit limit, you’re likely to be fine. How much you owe and your payment history constitute 2/3 of your FICO score. I never charge more than 8-10% of my credit limit at a time.

Personally, I don’t take great pride in my FICO score. I am much more proud of being left-handed. But when I applied for a car loan two years ago and the finance officer told me my credit score was one of the highest he had ever seen, I replied, “I could have told you that.”

But you might want to monitor your FICO occasionally to ensure there are no errors, and to see if there are unexplained transactions that might suggest identity theft. (In honesty, I don’t follow my own advice here.)

18 Larry

Ninja, please insert a close italic tag after “lower.” Wish this site would let me edit my posts.

19 SP

Fair enough.

I’m not educated on whether 810 to 830 makes any difference financially, but I’d say not. I kind of do think if you have NEVER had an installment loan (student or car), you maybe could benefit by financing part of a car (and paying it off early!). But I’m honestly not sure how big of a difference that makes in your score either.

Maybe it is the fact that it is a cold hard number that people are generally willing to discuss in public (unlike income and networth) makes it some sort of silly contest. :)

20 funancials

There is no extra benefit to having an 830 vs 810. Honestly with most lenders, anything about 720 is going to be treated the same. Also, you SHOULD NEVER finance a car for the sole purpose of improving your credit score. Now if you finance a car @ 3% because you can earn a >3% return elsewhere, that’s a different story.

21 SP

I don’t know if i agree, at least not at face value. If I were a person who had never had installment loans, I would, at minimum, see what kind of improvements having an installment loan could do for my credit score and how big of an impact that improvement would have on the interest rate on a home.

But if you can save .5% on a MORTGAGE by getting and paying a car loan in 6-months, it would be completely worth it. (I know they don’t make 6 month loans, but there generally is not pre-payment penalties.)

That being said, I wouldn’t be surprised to find out that it would not matter. But I’d do my research.

As it stands, I’ve had student loans, so this doesn’t apply to me. I would not take out a car loan to improve my score.

22 funancials

I see what you’re saying. I should NEVER use the word NEVER when it comes to personal finance because it always depends.

If someone has a 660 credit score and financing a car would get them above the 680 mark before they refinance their home, it could POTENTIALLY be beneficial. The loan would cost between $100-200 origination charge and 1-6 months interest @ 3% vs the significant savings on the mortgage rate for a 660 FICO vs a 680 FICO.

In this scenario above, you are correct. In general terms though, I would say your credit score will take care of itself if you have the right behaviors.

23 Brandy

Last time I checked my credit score was over 800. I am proud of that! I would never do something just to make my credit score better like take out a loan or carry a balance just to improve it, but I am proud of being credit worthy. Why shouldn’t you be? It isn’t a bad thing to be credit worthy!! I never want to buy anything ever again that I cannot pay for in full, but sometimes life happens and I might need to take out a loan for something.

For example, let’s say you realize this blog could make a lot more money if you increased your advertising and hired 10 new writers. You do not have the money right now to pay for these things, but you have figured out that in 6 months you will break even and in a year you will be making a million a month. If you do not get a loan, it will take you 20 years to build up to that level. You go to the bank with your plan and show them that you have run the numbers and did multiple tests and it is a guarantee that you will making a million dollars a month at the end of the year if you could only get a loan, but the bank doesn’t trust you 100% so they want to run your personal credit score. Not to many businesses made it big without taking out a loan or needing a letter of credit, and when you are starting out, you have to back up your business loan with your personal credit.

Or to flip it to negative credit scores, would you want to rent out your house to someone who can’t pay their bills? NO!!! A credit report doesn’t show all aspects of how worthy a person is to rent out your house, but it is one indicator of how responsible the person is.

Maybe I am just being defensive because I am proud of my credit score, but I think it is ignorant to think that a high credit score isn’t better than having a low credit score. You said, “I know the difference between a 6% interest rate and a 4% interest rate on a mortgage will save you tens of thousands of dollars over the life of the loan.” But how do you get that lower interest rate??? By having a higher credit score!!! Unless I am getting my bloggers mixed up, you have said that you and GN might be getting a house soonish and you cannot outright buy one, so having a higher credit score does affect you! And it is important to you…or it will be when you get your statement each month saying you are paying only $200 to your principal and $900 to interest instead of vise versa.

24 Amy

At the moment, I could care less about my score – our condo was paid off in 2006, our car paid off in 2010, no loans of any kind, we pay the credit card off every month. The best thing for us having high scores is the great credit card bonus offers we got last year (redeemed for about $1500 in gift cards).

25 midwest

I’m a little surprised that you don’t know what your score (and presumably your wife’s) is and you plan on buying a home in the next year.

Whether we like fico or not, you will inevitably be judged at some point in your life when you apply for a loan, get a job, get an apartment, etc. Why not do what you can to raise it? There are worse things you could be doing with your time, and better.

26 Eric

One of the things that I didn’t see mentioned was the impact to car insurance rates. You can secure lower rates with a better credit score.

27 C The Writer

My credit score is horrific. It will probably get better in two years when things fall off my credit report. But I don’t really care. I’m never getting another credit card again, I was burned too badly. I do think the whole concept of “credit” is stupid. “You’re good enough to get into more debt! Yay!”

I’ll probably just rent for the rest of my life. I don’t even care about a mortgage. I’m never getting another student loan, never a car loan. So I don’t care.

28 Jenny

I was terrified of finding out mine when I applied for a refi on the mortgage two years ago. I was shocked it was 770, but I’d had cc debt for 10 years – I was a sucker perfect candidate. When I got my car loan (only 1/3 of the car’s worth, dropped $4K cash on it), it had dipped a bit because of the refi, but still got me a sweet APR.

I don’t intend to have another big-term loan, ever. I’ve got the residence and the car, and once the student loan is paid off, I’ll start socking that money away to buy a new car in 10 years (I’m holding out hope for longer, but it was a 2yr old car).

29 Jenna, Adaptu Community Manager

It’s kind of like people who still talk about their high school or college GPA when they’ve been in the workforce for a couple of years…

30 Yesenia

This is my last semester as a grad student, and will be entering the job market in the summer. I’m not graduating with any debt, no credit cards, etc. My entire life, my parents treated debt as a horrible monster in the house. They paid upfront for cash, and when they couldn’t, they tried to get out of debt asap. I’m like my parents. So, I don’t have a credit card yet. However, I am going to get one pretty soon to start building credit and getting rewards! I only plan to use it for things I regularly purchase (ie groceries). I would like some advice on two points:

1. First, in your opinion which credit cards have the best rewards?
2. How do you improve your score?

31 Chariot

I don’t know my credit score because each year when I get my free credit report they no longer provide it to me. I’d have to PAY to see my number. Does anyone else get asked to pay for it???

32 Kij

It’s never been provided to me. But they give you a range or something.

33 Nick

I have a loved one that struggled with debt for several years – delinquent accounts, sent to collections, etc. After a change in job status, they were able to pay off / settle all remaining accounts. A few months after getting them squared away, her credit score was in the low 600s. As of a couple months ago, not quite a year later, the score was over 700, and will improve over time as the once-delinquent accounts drop off. It meant a TON to her. I’m sure there are other people out there in similar situations. By all means, tell the world about it!

Myself, I have student loans, a car loan (at 9.75%, I was straight out of college with a brand new job…), two credit cards (paid off monthly), and a mortgage as of the end of the month. My one late payment ever (oops!) was over four years ago and was less than 5 days late, so it never was reported. My credit scores are above 790 for all 3 bureaus, and would be higher if my length of credit history was not that of a 20-something, because, well, I’m a 20-something.

I haven’t gone out of my way to improve my score, nor do I plan on doing so, but I do appreciate the interest rate we got on our mortgage as well as the $400/year we’re saving on home/auto insurance due to a high score. I don’t have to like the whole FICO score thing, but I’m pretty sure they’re here to stay, so might as well reap the benefits of a high score.

34 Ghenghy

I’m surprised you don’t know your credit score given all your posts about buying a house in the future. The odds are you have a high credit score, but you really need to check now before you find “THE house” and discover too late that there are errors on your report and your score disqualifies you, or that you’ve been too conservative with your credit and don’t have enough history for a bank to feel safe lending to you. We just did a refinance and one of the incredibly bizarre requirements was that we needed at least 3 lines of credit each.

Also, high credit scores can get you free travel by applying for credit cards when they offer big bonus incentives (just be sure to cancel the card before the annual fee becomes due).

I get what you’re saying that it seems silly to try to pump up your score, and I agree to a point. But you have to be sure your score is high enough to allow you to accomplish your fiscal goals and if it isn’t, then time to get pumping!

35 C The Writer

If a lender has weird requirements, can’t you just find another one?

36 krantcents

I acted responsibly all my life and the score proves it. I only checked my score about ten years ago because I was getting a new mortgage after 20 years.

37 Derek

It sounds like the only people that don’t care, can do so because of their good credit score. I think we should care, and I think if you are planning to be in debt in the future, you should be proactive about it now. It affects more than just an interest rate on your auto loan or mortgage. As someone mentioned, it can determine whether you get a job, a security clearance, or a rental. It is directly correlated with your auto and home insurance premiums, whether you pay a deposit on your cellphone and what type of bank account you’re qualified to open, let alone actual credit.

I understand the perception, that working from a score of 810 to 830, looks to be an enormous effort for trivial results. It may be the result of the mindset to get to 810 in the first place, whether it’s an intentional plumping of the credit score or simply being financially responsible. Its like asking a billionaire why they continue to make further billions… I don’t personally think that someone seeking to “pump it higher” is mutually exclusive with someone who can “live within means.”

Since it is such a ubiquitous financial tool, I believe that it is important to be aware of it, care about it, and certainly to correct inaccurate information reflected in the credit report. Also the credit score isn’t as simple as carrying large or amounts of debt frequently and repaying it. It is also determined by length of credit history, credit to income ratio, the total number of open accounts, credit utilization, and inquiries against your account, etc. Knowing this only requires minimal effort. As does learning that you can apply for multiple car loans or home loans in a period of 30 days and only be dinged for one inquiry, or that it’s better to keep old cards/account active even in disuse.

I personally have gamed the system once. When I was a young lad, with no credit history, I took out a $500 personal loan, secured by a $500 CD. I payed off the loan balance in 6 monthly payments with the lent money. After this I was approved for a small used auto loan (i had previously been rejected).

38 StackingCash

Couldn’t have said it better myself! Excellent comment! Until the credit reporting agencies are outlawed, we are at their mercy. Better to master the game instead of complaining or ignoring it.

39 Avery

I check my score enough to know it’s bad. It wasn’t good to start and then my student loans unfroze and my score took a hit. I’ve never had a credit card until 3 years ago when I got a store card from a place I worked at. I only use it for one tiny purchase a month which I pay off immediately. I honestly don’t need a credit card and I don’t plan on getting one just to up my credit score.

Frankly, I feel like credit scores are actually hurting me more than helping me. You need a good credit score to get a job and also to even rent in most cases. I think people have a misunderstanding that a high credit score means that you are responsible. I never miss any of my payments and I am even paying more than I owe on my student loans. Sadly, this hardly does anything for my score so in the eyes of those checking my score, I look completely irresponsible when I am the complete opposite.

40 Ryan

Wait, there are people who go into debt just to increase their credit score? Does that even work?

41 funancials

No one does that. If they do, they are morons.

Having said that, credit scores to matter and I completely disagree with this post.

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