A Good Credit Score | Do You Buck the System or Play the Game?

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Recently my interest in credit scores has been peaked.  I’ve done a little writing around the web on the topic, but not much here.

How does applying for multiple credit cards impact your credit score?

To be perfectly honest, up until two years ago everything I learned about credit scores came from one source, Dave Ramsey, and he doesn’t exactly have the heart of a teacher when it come to that subject.

So, slowly I’ve been reading about credit scores and trying to determine how important they really are.  I’ve come to find out that I disagree with Dave Ramsey on credit scores (but I agree with him on a lot of things, too).

I’ve come to find two firmly established tribes.

The first camp are those who recognize the ludicrousness of the system and they refuse to appease ‘the man’.  Let’s call them the Credit Scores Don’t Represent tribes.

The second group includes those who will do back flips and sell their souls just to improve their credit score by 5 points.  Their financial identity and worth is wrapped up in their credit score.  Let’s call them the I Want the Highest Credit Score Known to Man tribe.

Like any epic battle, these two tribes love fighting against each other.

But, most of us find ourselves somewhere in the middle with obvious leanings in one direction or another.

Do You Need a Good Credit Score?

I believe that as time passes credit scores will become more and more important, not less.  Think about how folks in North America love to automate everything.  Grocery store, Wal-mart, and the bank.  Left and right relationships are being exchanged for whatever is more efficient.  And credit scores are efficient.  You don’t need to listen to their story.  You don’t need to analyze their previous habits.  Just do a quick search, and without thinking, you can make a judgment of the credit worthiness of a person.

Are credit scores always accurate?  Of course not.  Do you think that is going to make groups, companies, and individuals shy away from using credit scores? No way!

In the end, I think we’re going to need to be prepared to play their game or prepare to face a harder and harder time getting access to anything that involves credit.  And it’s not just the obvious stuff I’m talking about.  Sure, it impacts your ability to get a car loan.  Yes, you’re probably better off paying cash for cars.  Sure, it impacts your ability to get a credit card.  If they’re not sending you offers every week, you probably don’t need one.  But, what about when you want to insure your car, rent an apartment, or get a cell phone?  Those all require a good credit score range.

So, in the end, I’m going to play the game.

But I won’t do anything that will jeopardize my own financial standing.  I won’t take on debt just to improve my credit score.  However, I might avoid opening a new credit card account so that I won’t negatively impact my credit.

What is a Good Credit Score?

If you want to play the game, I guess you need to know what a good score is.

According to Jim Wang, the best credit score that impacts your loans is between 760-850.  If you have a 760 or more, you will have access to the best rates when borrowing.

According to Credit Karma, only 21.6% of people have a score above 750.  Above 700 is 38.6% of people.  If you have a 600, that would be an average credit score in the 50th percentile.

Thus, it would seem as though a good credit score is anything above 700.

What is the Best Way to Get a Good Credit Score?

I feel like I’ve said this before (probably because I have), but I wonder if anyone is listening so I’ll say it again.  Having a good credit score and having good personal finances don’t necessarily work against each other.

Sure, there are some credit card fanatics who refuse to carry a credit card.  That actually is a very good decision.  I’d never knock anyone for making that choice, but I still want to carry a credit card.  The convenience far outweighs any cost.

But for the average person who carries a credit card, if you responsibly pay your bills and make financially wise decisions, your credit score will increase.

I used to think that there were a group of goons in a back room who planned to give a bad credit score to anyone who was good with money.  Now I realize that if you pay off credit card debt, pay your bills on time, and responsibility handle your money, then your credit score will increase.

Why Monitor Your Credit Score?

I’ve recently checked my free credit score at Credit Karma.

Credit Karma gives you a good approximate score if you’re trying to track the movement of your score.  Otherwise, you may want to pay for a full feature credit monitoring service. I got a year free Experian credit monitoring when some personal information was lost by a company.  It is nice to have a notification when there is any activity on my account.

I think it is a great way to monitor fraudulent activity.  Another option would be to sign up for credit monitoring from somewhere like myFico. myFICO does offer a 10 day free trail of its credit monitoring, but if you don’t want to keep the service you’ll need to cancel before the 10 days is up or you will get charged.

Top photo by Horia Varlan.

Do you buck the system or play the game?

Comments

  1. Scott F says

    In the USA, or at least all the states that haven’t made it illegal, insurance companies are using credit scores to determine your rate. They think that if you are irresponsible with your finances, then you will be irresponsible with your driving and are more likely to have an accident (or burn your house down, or whatever) and charge higher rates to those with lower credit scores. Since insurance is required by law if you have a vehicle or have a mortgage, you are impacted by your score whether you believe they represent or not. Just one more example of how they are being used.

  2. says

    I do “play the game,” so to speak. Like you, I agree that Dave Ramsey does a lot of good as far as helping people get out and stay out of debt. But I don’t agree with the “no credit card” mentality.

    You said it best that when people are responsible with the card, pay the entire balance monthly, and don’t go overboard with spending, then this can bring positive rewards.

    For one, it demonstrates discipline. Two, there are the points and cash back rewards. And three, your credit score rises over time.

    And credit impacts major decisions like qualifying for a mortgage or deciding on a job applicant.

    So I am in favor of understanding the credit card “game,” and using them appropriately so you don’t get burned.

  3. says

    I can appreciate the idea that saving up and paying for everything in cash is far better than borrowing to fund our lives. Who cares about your credit score if you are paying with cash?

    However, as you pointed out, there are times where your credit score will be used against you even if you aren’t borrowing.

  4. says

    Hey, I read somewhere unused Credit card can spoil your credit score, then what is the way out for those who plan to pay by cash. And signing up with myFICO is not much of a help unless you plan to stay as paid member since it is available only for 8 days.

  5. says

    Just found your blog from christianpf.com. Good read.

    I think Dave’s real issue is with people who obsess over their score. Yes, I know that it matters to insurance, but does it make a difference if it’s 700 vs. 750 vs 800? I suspect not. I’m betting that the guy who has 600 may pay one rate and they guy who has 700 may pay a lower rate, but I’m betting it doesn’t matter more than that.

    And, you should always be shopping rates to get the best deal you can. I like the idea of doing things to help the credit rating (pay on time, don’t take huge debts, etc). But I can’t see artificially doing things to inflate my score.

    • says

      Randy,
      Thanks for visiting.
      I’m honestly not sure what his issue is, but I know that some people get confused about the topic. I remember a mother calling the show talking about how her son wanted to buy a car and she kept telling him that his credit score doesn’t matter. The problem is if that son did plan to get a loan (not a smart choice, but still his choice) then the credit score would matter.
      I agree with you that doing extra things to help your credit score doesn’t make much sense.
      Thanks for your comment.

  6. Bud Olesen says

    Hey Randy,
    I do respectfully disagree with many of the financial recommendations Dave Ramsey speaks about. The problem is not an issue of credit or credit scores. The issue is about presonal responsibility. It’s about responsible people managing their lives in a responsible manner. In the early 1900′s everything was about cash and carry, or barter. After WWII the credit industry started, and has evolved into what it is today. As our system becomes more complicated it is becoming increasing important to have good credit. I’m not talking about maxing out credit cards, and living beyond ones means. Dave Ramsey can talk about buying homes, cars, and all big ticket items with cash, but this is not the real world for more than 90% of Americans. I learned the advantages of using other peoples money (OPM) many years ago. If a person has cash investments working themself, does it make sense to take that money and use it to buy the new car, or take it to purchase the deam home. Isn’t it smarter to leave the investments working for ones self and use OPM/CREDIT to get the things we want. Remember, if an emergency comes up the you still have the money in savings/investments to pay the obligation off.
    Credit is is not evil, irresponsiblity is the evil.
    The system is very complicated and gets more complicated everyday. Having good credit/credit score is something we all have to have.
    Just my opinion.
    Bud Olesen

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