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I wanted a credit card SOOO bad.
At 18 years old, I was flat broke and living in a friend’s basement. For the life of me, I can’t recall how I justified applying for a credit card when I had no money. I’m sure that I just thought this is what responsible adults do. I remember sitting in the living room and filling out my first credit application. It was a Mastercard of some sort.
The application was turned down flat, rightly so. It would have been foolish to give credit to a broke-ass 18 year old living on his friend’s couch who couldn’t afford to put gas in his Geo Metro (amusingly the same car I drive now, 15 years later). Determined not to let common sense get the best of me, I persisted. I applied for a gas card instead, and was approved for FIVE HUNDRED DOLLARS in free gas!
I was all:
Of course I learned a month later upon receiving the bill that nothing in life is free, but it was fun while it lasted.
I was sure that I needed credit to be an adult, to have credibility. To get any respect I needed to be able to swipe my way out of a restaurant rather than pay cash like a schmuck (this was before tappable cards, which are even more ballin’ than swiping)
It took a decade of bad decisions and mounting debt for me to realize the truth.
Credit Scores are Bullshit
Forgive the language, but it’s true. Contrary to what you might have been lead to believe, you don’t need a high credit score to buy a car, go on a vacation or do many of the other fun, rewarding and often expensive things in life.
You don’t need to put the finer things in life on your tiny, plastic debt-rectangle. Credit companies want us to think that debt is the only option for making large purchases. It takes diligence, self-control and patience, but you can save real cash for the finer things. No car dealer is going to turn you away because you saved for two years and want to buy your vehicle with cash.
The banks have us all fooled
I know I might sound like a bit of a conspiracy theorist here, but hear me out. Banks want you to believe that you need a great credit score to buy things. In order to get a great credit score, you need to buy things on credit and pay at least your minimum payment on time. Once you get your credit score up there, they’ll let you borrow even more money to buy bigger things!
So how important is it to have a good credit score?
Dave Ramsay would say it’s not important in the least, and I’m inclined to agree with him on that point. I have a good credit score, in part because I borrowed a crap-ton of money in my 20s and paid it all back on time. The thing is, if I had saved for my college tuition, paid cash for used cars instead of building that credit making payments on new ones, I could be writing this post while sitting on top of a big pile of money.
[pullquote align=”normal” cite=”Dave Ramsay”]Like it or not, your credit score is not an indicator of winning financially. All it tells you is whether you are good at borrowing money and paying it back.[/pullquote]
My high credit score has cost me the better part of 100k to build. When asked, I will always tell people it’s not worth it. If I had learned about sound financial management at a young age, I could have invested that money for a good return. I’d happily trade my status as a good repayer of debt for 100k, but that’s just me.
Buying a home
The one time that I feel having a good credit score has really helped me out was when I was applying for my mortgage. In order to get the best mortgage rates, banks take a lot of things into account, one of those is credit score and payment history.
The thing is, what if I had that 100k that I mentioned to put down on a home? Of course my credit history would matter less and I’d be eligible for a premium rate. Having cash on-hand is a far more powerful negotiating tool than a great credit score.
What to focus on instead
Focus on building assets. Focus on putting yourself in a position where you own you car, your home and your other major purchases as soon as possible. A credit score is not an asset, it’s a number that does little more than strengthen your bargaining position when you’re taking on debt. Save your money. Start investing young and build a nest egg that will put you in a position where you don’t have to worry about your credit score. Build an emergency fund so that when life happens to you (like it did to me recently), you will be in a position to deal with it.
There’s nothing wrong with using credit
Your credit score is merely one of many tools in your financial toolbox – one piece of a much larger picture. Learn how to use credit responsibly and it can be a benefit to you. But like a hammer, if used irresponsibly, it can do major damage.
A high credit score is not going to help you sleep at night, but having enough liquid cash on hand to actually pay for the things you want to buy sure will.
Question for you:
Do you bother checking your credit score?