Endless Gibberish

Misinformation about credit. rawr.

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There are people that have grave misconceptions about credit scores and how they work. I ran accross this extremely misinformed blog post. I’m including an example of this and the point of this article is to debunk misconceptions, not ridicule the guy.

The post discussed is located here (entitled “I have a credit score of zero… and love it.). People on Fatwallet Finance criticizing about this post can be found here.

“I have a credit score of zero, and I love it. A few weeks ago, I tried to pull my FICO score from Fair Isaac, and they told me that my score was so low that they could not even calculate it because I have not had any credit activity in over a year. The error message even went as far suggested the reasoning for this is that I might very well be deceased!”

First, let’s get things straight. No credit does not equal a score of 0. If you have no credit, you simply don’t have a credit score. To get a score of 0 (if even possible), you would first have had to have credit and then be one of the world’s biggest deadbeats by defaulting left and right.

“The only thing that a high credit score enables you to do is get deeper into debt. No one wants to be thousands of dollars in debt and in a very deep financial hole, but so many people do it because they have fallen for the myth that you need to have debt as part of your financial life.

The only way to have a high credit score is to be in debt for great amounts of money over long periods of time. This isn’t exactly a winning financial plan. The FICO score is based on your debt payment history, your amount of debt, the length of your credit history, the types of debt that you have and any new credit that you attain! As the famous financial counselor Dave Ramsey puts it, a “credit score is an I love debt score”.”

This is basically the part about how people “worship” their fico scores and whatnot. I really hope this guy plans on renting for the rest of his life. High fico scores are basically an indictor of your credit risk to financial lenders. A higher score will enable you to get lower rates on mortages, car loans, etc.

The big misconception here is that he says you have to be in debt for great amounts of money over long periods of time. That isn’t how fico scores work. If you’re in debt for a great amount of money, your fico score would actually be pretty low, not high. If lenders see that you owe a great amount of money to other lenders, you are riskier to lend to. A fico score is based on history of current credit accounts, on-time payments, etc. You don’t have to borrow huge amounts of money over a length of time to have a high fico at all. My fico score increases every month and I’ve never been “in debt for great amounts of money over long periods of time”. Actually, I’ve never paid a cent of interest or finance charges EVER.

I mean it’s great that this guy can go about this life by paying for everything in cash but he’s doing a disservice to his readers by misinforming them various topics. Then again, I doubt anyone with millionaire potential takes his blog on “information for those who want to be millionaires” seriously.

The guy sounds like someone who couldn’t discipline themselves in the past and got burned with impulse buys on his credit cards. That’s probably the reason why he dislikes credit cards so much. I think this is proven in one post he where basically says that you cannot use credit cards responsibility and if you say you do, you’re a liar. He lists you could be hit with late fees if your payment never makes it to the bank, ever heard of online payment?

Credit cards serve their place. They are a tool that intelligent people can use to benefit their finaances. The best example is the 5% back cards on gas, supermarkets and pharmacies. If you paid in cash, you’re losing out on that 5% back on things you would have purchased anyway. I’ve never had a late payment because I use online bill pay. I’ll say that credit isn’t for everyone, especially those without spending discipline, but to say they shouldn’t be used by anyone is an ignorant statement.