Our society places too much emphasis on credit scores. And sadly, I’m not much different myself. I am somehow proud that I have a high credit score. I use Credit Karma’s free credit tools and keep an eye on my credit history to make sure my information is accurate. For God’s sake, my credit history has been growing since I was about 12 years old or so.
When I was a kid, my mother added me as an authorized user on one of her credit cards but never gave me access to it. So, from the age of 12, my credit report shows that I’ve had a $10,000 line of credit in good standing (thankfully she has only ever charged a few bucks a month on it and always pays it off in full).
Now, at 23, I owe about $25,000 for student loans, $13,000 for an auto loan at 3% interest, and have an AMEX with a $12,100 limit and a Citi card with a $7,100 limit. Everything is in good standing and FICO seems to think I’m very good at managing credit.
By all accounts I’m pretty financially average at this point in my life. I’m a college graduate and in debt. I’m lucky to have landed a solid job in my field of study upon graduation and I already have a steadily growing 401(k). But, I’m tired of being average. I want to be out of debt as early in my twenties as I can. At the same time, I’m still concerned with keeping my credit score high. Why?
The reason I want a high credit score is to be seen as a success and get the very best offers from banks when it’s time for me to get a mortgage. But, I know I never want to borrow again and a credit score is only used to determine borrowing eligibility. Do I cut up my cards and pay cash for my home? Is underwriting (the mortgage option Dave Ramsey recommends) an option? What do I do?
I won’t go off on a rant about how messed up our society is and how stuck we all are on relying on debt. But I am fed up with this whole concept of a credit score. FICO and friends need to come up with a new standard that doesn’t just rely on debt and line of credit history. A system should be set up that takes into account current income, total available income, payment history on other recurring expenses (like cable, electric, water, phone, etc.), and probably many other things. But that isn’t as easy.
The flaw is that good credit means you’ve borrowed plenty of money. And that you’ve had lines of credit with years of history. And that you stay well below your credit limit. Those are all centered around how we manage debt. But being financially fit means having no debt and therefore no credit history.
Will anyone ever fix the system?