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.
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?