When it’s all said and done, debt is still debt
By Mike Lazear: PIC Current Assistant Producer
What is your credit score? Do you actually know it? Is it a good score? Check this list of “cutoffs” if you are unsure about your standing. Chances are good that you are just as baffled as I was when I looked. Seems like there are a lot of differing opinions about what makes a good score. Could the idea of credit scores really just be a ploy to make the average consumer feel “better” about the debt they are in? I like to think so.
When all is said and done, it doesn’t matter if your credit score is a perfect 850 if you are in so much debt that you can’t pay it off. I’d personally rather have a score of 400 but have $1 million in the bank and no debt. Perhaps a better measure of financial health is your ability to withstand catastrophic events like job loss or medical emergencies while maintaining a decent quality of life. The whole idea of a credit score is only as good as allowing you easier access to more credit.
Credit card companies want you to be in debt.
They collect the interest you pay while you get to reap benefits of “rewards” and still pay more. If you credit score is higher, you have access to more:
- rewards
- high balance limits
- low monthly payments
In a sense, the higher your credit score is, the easier access you have to being manipulated by credit card companies. You would think the reverse was true. Shouldn’t people who have better financial responsibility be treated in such a manner and not be more vulnerable to attack?
Sure, there are benefits to having a higher credit score.
- better rates
- lower payments
- a better chance at getting a mortgage or a car loan
But this is my point. It helps you create more debt. Your goal should be to eliminate debt and build financial security.
I am not sure what my credit score is. I don’t really care. I know that sounds brash, but by the amount of credit card offers I get in the mail and the fact that I am always careful to make my loan payment on time, I’m sure it is fairly decent. That’s a good way to tell how high your credit score is, by the way. If you get a lot of offers in the mail, and the offers you get are good, you are probably in pretty good standing, thus a bigger target for credit card companies to exploit.
Check out these links:
If you are really curious, you can get your credit score fairly quickly at sites like this
Tips to raise your credit score. Notice that most of them include staying in debt, except the very first tip.
I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.
Tim Ramsey
Hey Mike,
Thanks for the post. You make some really good points, especially about folks paying more attention to saving than debt. But I have two disagreements:
1. People should watch their credit score because it can alert them to credit fraud, such as someone using their identity to buy things.
2. I think you underestimate the value of homeownership. Taking on long-term debt (at a payment you can afford) is critical for getting your own home and people are better off when they can own their own home. Plus, even if you don’t want to buy a home, rental agencies do credit checks before they let you move in.
Thanks again for the post otherwise. Very good take on the situation.
Cheers,
Colin
Colin,
Thanks for your reply. I agree with you on your points as far as being aware of your credit score can at least protect you from fraud, scams and the like.
As far as homeownership goes, there are plenty of people who do fine without owning a home, especially if they are in a financially perilous position in the first place. Chances are good that if your financial standing is strong enough to own a home in today’s market, you probably don’t need to worry as much about your credit score anyway, because you definitely have a lot of purchasing power.
I feel that you have to have pretty bad credit for rental agencies to bar you from renting an apartment altogether. Sometimes you have to pay more upfront though.
Still, I understand your position. Maybe knowing your credit score isn’t a bad thing, but certainly there are much more important things that define financial health, like level of debt and ability to repay/have a good quality of life.
Thanks for your comments,
Mike
Thanks for the message left on my post http://frugalcents.wordpress.com/2008/10/10/bad-credit-save-debt/. Hope to read more from you. You have a great informative site here.
Keep it up.
Mon.
Just this – this is an awesome thing