Being married to Joe has been a very educational experience. He teaches me a lot of random things that I never knew before. He is the money guru in our house and has done a lot of research and learning to become that way. One of the things he is passionately against is credit scores (and credit cards). I love the information he put into this post, how he explained it, and that there is no doubt about it, Joe hates debt of any kind for any reason.
I realize that not everyone will agree with this view of credit and that's ok! This is how we've chosen to live our life and because it's a little bit different than most people, I thought I'd share why.
This is what I really hear when someone says, "I'm only getting a car loan to help build credit":
I really want to justify buying a car I can't afford to impress people when I'm at the stop light. I want to sign up for a 4 year loan to pay an extra $2,000 in interest for a car that will only be worth, if I'm lucky, half of what I paid for it. Why would anyone want to get a loan and pay interest on something that loses value so quickly!?
This is what think when someone says, "I only got a credit card to build credit. Plus I get POINTS!!":
I have yet to find someone who struck it rich using credit card points. Seriously, people getting excited about 1% cash back... on a good month maybe a bonus product that offers 5% cash back or airline points!! Wow!! Do people realize that if they spend $10,000 that is only $100 cash back? FREE MONEY?! Not really...
Once I began to understand how the FICO score, AKA credit score works, I came to realize that it is one of the most idiotic ways to judge a person on their finances. Credit scores only tell someone how good a person is at BORROWING MONEY!!! Here I'll make up a story: A man, we will call him Cody, has 5 credit cards and a car payment. All of his cards are nearing the maximum limit, but he always makes his minimum payment. He has a $20,000 car loan, also makes a minimum payment. He has a great credit score, we will say it's about 760 and he is living paycheck to paycheck. Now, we have Joe, a brilliant man who is excellent at saving money and managing his budget. Joe has paid cash for all the cars he owns and has never had a credit card. Joe has saved up 2 MILLION DOLLARS and has that money invested as well as in some savings accounts. One day Joe and Cody walked into an apartment complex and want to talk to the manager about renting. They fill out the forms, and give them to the manager. The manager then runs the credit scores, finds out that Joe doesn't have one at all, but Cody has a great one. The manager offers a room to Cody, but not Joe. Joe could buy the whole complex, and yet, he isn't "trustworthy" enough! (Joe should just go pay cash for a house anyway...)
Most people want a credit score because they are concerned with buying a home, and getting a mortgage. If you aren't aware, there is something called "manual underwriting". If the apartment complex in the story above did any manual underwriting, they would have looked at one bank statement and realized that Joe would be a much better tenant than Cody, because there would have been almost ZERO risk renting to Joe, but with Cody, the risk would be high because he was in deep with all of his cards. When you go to buy a house, the underwriter isn't just concerned about your credit score, they look at the details of your life. They look at how long you've had a job, how much you have saved, how much money you're putting down, whether or not you've been in debt before (if you haven't, this is good), how much you make at your job, and shiz. All of these things are weighted more heavily in their decision to give you a mortgage than your credit score is.
So before you go run out and try to build a credit score, just ask yourself if it is worth the cost? Would you go pay someone $2K for a 800 credit score, because that is what you are doing. Save up for things, don't buy what you don't need, and invest what you would have spent in interest, you will be amazed at what EARNING 12% in a mutual fund, verses spending 9% on a credit card will do for your life. Trust me, when you are a 70 year old with 4 million in the bank, you won't regret it. Don't suck up to credit cards, just so you can get even more loans later.
We do have a credit card, I will admit that. It's Joe's and he got it when he was a teenager and didn't understand credit scores yet. I think we have used it once, and I don't even remember what we bought or why we used it, but I do remember that we paid it off in two payments within three weeks of the purchase. Joe always tells people that he has no idea where it even is (don't worry, I know where it is). I do have two store credit cards, but I only have them to get better store coupons and I pay them off right at the register, so it's like I never use them. (Joe still hates that I have them though.)