A few months back I wrote an article touting the awesomeness of all things Credit Card. My response was in rebuttal to a Dave Ramsey article on their lack of purpose in the world.
But just as I feel strongly that credit cards can be used to an advantage if handled responsibly, I’m extra passionate about the need to be educated fully on credit and it’s place in the world.
I touched briefly in my previous article about why I feel credit score TRULY is irrelevant, but I recently saw a piece on my other idol’s website discussing how college students should go about building credit.
The article has some pretty good points and is generally well informed. But it seems there is an underlying theme of dependence on credit score.
Not that I could fault anyone from writing in that tone, for that theme seems to be embedded in American culture today. But it’s not reality. So let’s add some clarity.
Credit Karma seems to be slowly taking over cable networks reminding us that in order to get a car, replace a dishwasher, or to even move out of your parents’ house you MUST have a credit score. And you can bet your butt the American public is eating it up.
But this pushes us away from a better financial future, one where we’re not slaving away working hard only to give money to the banks in the form of interest.
Because that’s why they advertise. It’s not so you can get that Mercedes you’ve had your eye on, or so you can move into your dream home, or so that you can solve any emergency with the swipe of a card. It’s so that you can pay them interest. That’s what they want, and they rake in billions off of it.
The Banks Want Your Money!
A credit score has a realistically miniscule importance. We’ve been taught that it must be important because how else will we buy that car, that house, that new dishwasher? They have us so convinced that you didn’t even think of the option of saving up cash to do any of that. I mean, it must be impossible, right?
Now granted, paying cash for a house is not an overnight thing, but we’ll get back to that. What about a car?
You can’t get a car, can you? Because it’s $30,000. So you need credit so it will only cost $475, right?
I hate to break it to you, but that $475 is for 7 years, and your car doesn’t cost $30,000 anymore, it cost a little over $40,000. So you paid 40,000 for a $30,000 car, and by the time you’ve finished paying it off, it’s worth $7,000, so what do you do? You trade it in. You get $5,000 in trade-in credit because the dealer won’t give you private sale value, and hey, you handled $475 a month so well, why not up the game to a $40,000 car and a $550 payment with another $10K being paid to the bank. And so on and so forth. If you lived your life that way consistently, you’d pay $30,000+ in interest on 3 cars over 21 years.
Having good credit DOES NOT make it possible to own things. It makes it possible to own things NOW at a price. Okay, so maybe a house is a reasonable purchase even when you don’t have the cash for it, but do you really NEED a $30K car?
All that said, there are a few slight advantages to maintaining a credit score.
1. The Mortgage: While it’s NOT impossible to get approved for a mortgage without a credit score, having a good one will open your options significantly and make for an easier process.
2. Car Renting: Again, it’s not out of the realm of possibility to rent a car without a credit card (and thus, credit score) in hand, but it does simplify getting out the door of the rental agency, no matter which you choose.
3. The Apartment Rental: Like the above two, this can be done without a score, but there may be additional requirements that make the process less than ideal. As I’ve discovered, this may involve proving income, paying a higher deposit, or more.
4. Rewards: This one is a touchy subject, because most people with most cards aren’t earning rewards worth the hassle of holding a credit card. But if you are interested in the points/miles hobby, it can be quite lucrative.
So should you make it a goal to have a good credit score? No!
Having a good credit score has never been a goal or concern of mine, and it isn’t an indicator of any kind of success. I have more than a dozen credit cards that are paid off every month and simply having a card and paying it off consistently will cause your credit score to be high. It doesn’t take anything to achieve it. On the contrary, for someone such as myself it would take work to get it to go lower.
Ultimately:
If you’re not into the points/miles world, there will only be some minute convenience in holding a credit card and maintaining a decent credit score. If you’re not a travel bug, that advantage will hold even less meaning. Even if you choose to open a line of credit, don’t base your financial future on the idea of owing money to banks for your entire life.