Do You Care About Your Credit Score?

Written by Nickel - 27 Comments

As a followup to yesterday’s post about FreeCreditReport.com, I wanted to open up a discussion about whether or not you care about your credit score.

On the one hand, I’ve written extensively about why you should care about your credit score… Like it or not, your credit score does matter, even if you don’t intend to borrow money. In fact, insurance companies, utilities, apartment complexes, and even prospective employers regularly check credit scores when evaluating potential customers/employees.

On the other hand, debt reduction guru Dave Ramsey has disparaged credit scores as being nothing more than “debt scores,” and has gone on record encouraging his followers to “stop worshiping at the altar of the FICO score.” Dave’s point here is that you need to focus on getting rid of your debt rather than worrying about what effect doing so will have on your credit score. I agree, but…

I still care about my credit score. I’m a realist. Like it or not, credit scores play a central role in many aspects of our financial lives, and it doesn’t cost me anything to have a good one. I don’t lie awake at night worrying about it, and I most certainly don’t base major financial decisions on the impact it will have on my credit score, but I do care about it.

The simple truth here is that living a responsible financial life typically results in a high credit score. My wife and I use credit cards as a convenience, but we always pay our balance in full, and have never carried consumer debt. We save and invest aggressively, and we have a 15 year fixed rate mortgage that will be paid off well in advance of its due date. We also have credit scores just shy of 800.

My point here isn’t to brag, but rather to point out that you can have your cake and eat it, too. While it might feel good to thump your chest and claim that you’re looking forward to getting out of debt and having a credit score of zero, it’s not an either/or proposition. In fact, the two are intrinsically linked. As you work to get yourself out of debt, your credit score will likely rise — and that’s a good thing.

Published on May 5th, 2009 - 27 Comments
Filed under: Credit Cards, Debt Reduction, Mortgages
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

Comments (scroll down to add your own):

I agree that you shouldn’t worry about your credit score. If you simply live your life within your means and financially prudent, your credit score will take care of itself. My credit score is just under 800 as well, not because of anything special that I’ve done, but because of the lifestyle that I lead.
Comment by Mike — May 5th 2009 @ 4:12 pm
I only care when I’m ready to buy a house for as credit cards, cars I don’t care, because I use cash.

I do check it once a year for identify theft
Comment by Moneymonk — May 5th 2009 @ 4:38 pm
Definitely, pay off your debt. Don’t try to leave it on so you can keep your score up. But sadly, it’s true that it could affect you. It makes no sense. Last week Peter Schiff was talking about how his own FICO had really dropped and he owes nothing! He pays everything in full each month, and his FICO dropped into the 600’s. I guess FICO might also be a number for how much money they think they can get out of you…. you know, pay them a little extra AND pay back everything you borrowed. That’s what they want. I’m going to forget about that though – I’ll pay it all off.
Comment by MoneyEnergy — May 5th 2009 @ 5:13 pm
Right now I could give a crap about my credit score. I’m getting out of debt and at this point that is my focus. Once I’m out of debt, have the emergency fund, retirement and kids college done then I’ll worry about it.

The only reason I would really care to keep it decent would be for another mortgage but I’d really like to pay cash for every single thing I ever buy.
Comment by Brent — May 5th 2009 @ 5:15 pm
People who lead responsible lives like Mike shouldn’t have to care about their credit scores, because it’s a natural reflection of his good credit usage. But for those who have bad credit, credit scores can be an extremely useful tool to set a precedent that they can improve on.

Some credit monitoring services even allow you to lock your credit report to protect it from being hurt by fraud.
Comment by Phinance — May 5th 2009 @ 5:37 pm
This is the first I’d heard that people believe not having debt might lower your credit score.

My credit score is 846. I have no debt at all, and haven’t for years. My score was much lower when I had debt. Now I use a non-revolving Amex for everything.
Comment by Jeremy — May 5th 2009 @ 6:03 pm
I think this has kind of gone down the wrong path.

Dave Ramsey uses the “don’t worship at the altar” quote in reference to cutting up and canceling credit cards. And occasionally in reference to having multiple types of debt.

I also find it hard to believe that anyone would advocate maintain reoccuring debt for credit score purposes. But that’s not the context he uses that phrase in.

My credit score is 760+ and I’ve never had a mortgage. In addition within the last year, I literally canceled all of my credit accounts. Some people think the actually canceling of the accounts is dumb because it hurts the length of credit history and your score.

Dave’s view is that maintaining intensity, passion, and commitment are more important than a temporary ding to the score.

The guy who commented on your last thread was just a little off base, that’s all. I’m one of the most passionate anti-credit people you’ll find, but I would never advocate ignoring your score completely and neither does Ramsey.
Comment by Baker @ ManVsDebt — May 5th 2009 @ 6:52 pm
I don’t care about my credit score at all because my goal is to borrow as little money as possible. That being said, if I make wise financial decisions, my credit score will be strong enough for the other stuff anyways. I don’t worship it but yet my financial decisions should only increase it.
Comment by Wise Money Matters — May 5th 2009 @ 6:57 pm
Baker: I’m sorry, but what you’re saying isn’t entirely correct. Dave has specifically said that the “only way” to maintain a decent credit score is to continually borrow and pay it back:

“when you’re not borrowing money, your credit score will go down… your FICO score is an ‘I love debt’ score…”

(That’s an actual quote from one of his shows.)

He’s not talking about a “temporary ding” to your credit score here. Rather, he went on to argue that it will go down, and that you shouldn’t care. I disagree on both points.

First, your credit score will likely rise as you get your financial house in order and, contrary to popular belief, it won’t suddenly go a cliff if you stop borrowing. The is especially true if you simply pay of your debts but leave the accounts open. Why not? It doesn’t hurt anything to do so.

Beyond that, as I’ve detailed above and elsewhere (and as you yourself have acknowledged), there are good reasons to care about your score.

Comment by Nickel — May 5th 2009 @ 8:08 pm
In the past few years those with poor credit scores were able to get loans and mortgages; and look where that got us. . .

I suspect (and hope) that in the future, the credit score will again mean something in regards to getting good loan rates (or perhaps even loans in general).

Ramsey is great for those in a mess or those who aren’t bright. But for those who are and have been responsible, his ‘rules’ are nearly pointless. Go ahead and start the vitriolic defense of DR.
Comment by g — May 5th 2009 @ 11:07 pm
In reality, the “only way to maintain” a good credit is to borrow and pay back over the long haul. Of course, after multiple years (around 7) of not borrowing you wouldn’t be maintaining anything. I think Dave was probably making that point and simplifying it based on the format where you heard that specific clip. You’re credit score may not go “down,” but it won’t go “up” as much as it would.

I’ve devoured a lot of Ramsey material, FPU, books, radio, television and have never heard him make a point that indicated he believed you should totally ignore your score. He doesn’t want you to prioritize your score over certain other things (which are controversial).

Ramsey certainly has straw men, but in my opinion this just flat out isn’t one of them.
Comment by Baker @ ManVsDebt — May 5th 2009 @ 11:21 pm
Ramsey’s message is somewhat contradictory when it comes to credit scores. As Nickel pointed out, Ramsey openly jokes about worshiping at the altar of FICO and how his own credit score is probably around zero. I listen to his podcast every morning and I hear him say something along these lines at least once a week.

With that being said, one of my co-workers is currently attending his FPU (Financial Peace University) course. Last night’s lesson was you guessed it – monitoring your credit score.

If Ramsey has such a total disregard for FICO scoring then why would he stress the importance of monitoring it in his coursework?

And remember – Ramsey is a millionaire. If I had that kind of money I seriously doubt that I would care that much about my FICO score either…
Comment by Kev — May 6th 2009 @ 8:34 am
I still care about my credit score! Why wouldn’t I? Having a high credit score is like having an ID to a super exclusive club, the benefits of which are all the best rates and terms on homes, cars, boats, not to mention a thumbs up on my behalf to potential employers and landlords.

I agree that it’s smart to take care of your debt and shoot for the goal of living your life free from those burdens. But the two things go hand in hand. If you rid yourself of debt, your credit score will likely be high and healthy, and you’ll gain access to that wonderful “savings club” that a stellar credit score affords you.
Comment by Ann-Marie — May 6th 2009 @ 10:51 am
Being younger I don’t even know what my current credit score is, which I know I should. I pay in full my bills each month and have no issues with credit in the past so I am assuming it is good for my age, hope so at least. I know I need to pay more attention but until it’s necessary, probably won’t be too interested in it.
Comment by craig — May 6th 2009 @ 2:51 pm
There are several innacuracies in this post.

“Like it or not, your credit score does matter, even if you don’t intend to borrow money. In fact, insurance companies, utilities, apartment complexes, and even prospective employers regularly check credit scores.”

If you are a homeowner, then renting an apartment is of no concern
IF you already have utilities, then you score is of no concern. At most, utility companies require a refundable deposit retuned after 6 months or consistent payment. Here it is $100 – or you can have an existing customer co-sign.
Most employers do not check credit scores, and not not using credit will not keep you from getting a job. I can’t think of a single instance where explaining you are completely debt free would be bad.

Ahhh, the insurance score. Not the same as a credit score, only one of several other components that go into evaluating insuance risk, and the insurance score by itself cannot influence rates or coverage approval/denial.

And when you stop using credit all together, your score doesn’t continue to go down. I see scores every day. They don’t have a score of zero, they have NO SCORE. No Score is different than a bad score.

You can still get a mortgage with no score, or a car loan, or many other types of loans, even though you shouldn’t be borrowing money.

The point is Ramsey is right. Forget about your credit score. You will live just fine without it. If you never use credit, have no credit available, pay off and close every debt and never play the game again, you will still get insurance, still get utilities, still get hired, and still live.

A credit score is only useful if you plan on borrowing money again. If you don’t, it doesn’t matter.
Comment by Troy — May 6th 2009 @ 3:10 pm
I think the original blog entry is right on point — I’m in the minimal debt camp, but I do care about my credit score. A person should always care about his reputation — you never know when it might be important. Who knows — maybe I’ll need to borrow money again. In the meantime, when I re-did all my insurance recently, I was pleasantly surprised at how big a factor my good credit score was in getting me better rates. Still, that credit score seems to have remained good despite very little use of debt over the past ten years.
Comment by Richard Barrington — May 6th 2009 @ 3:50 pm
Troy, you are right in that your credit score is different than your insurance score.

Insurance companies use the information contained in your credit report (and no, they do not need your social security number to do this anymore) to calcluate their own score. Your credit history does play a major role in the price of insurance. You cannot be denied insurance soley based upon your credit, but they can change you such a rate that you wouldn’t want to pay it.

I’ve worked in insurance for the past 11 years, both as an agent and in a home office function.

Like it or not, your credit report will affect how much you pay for insurance. Even if you don’t have a credit file, you are still not going to receive the best rates.
Comment by Mike — May 6th 2009 @ 4:22 pm
Dave Ramsey has a point, I have always had a better credit score than my husband because I used credit sooner and more extensively than he did. I also got in over my head a few times and then paid it down, while he stayed pretty level headed till about 2006/2007 when he got in WAY over his head, and then we had to tackle our debt together.

That being said we are in the process of a re-finance and both our scores are above 730, the minimum they were looking for to give us the lowest rate possible.
Comment by Danielle — May 6th 2009 @ 5:10 pm
These days you simply must consider the impact of your decisions on your credit score. You may not need it right now–or even care about it–but there will come a time when you need it. If you take care of it, it will take care of you.
Comment by Chris @ BuildMyBudget — May 6th 2009 @ 7:13 pm
Has anyone heard of an employer requesting a minimum credit score?

My employer checks prospective candidate’s credit report before hiring them–just to make sure that person does not have any items in collections or past due accounts (thus making them more likely to steal money). But I’ve never heard of an employer looking for an ideal credit score range.
Comment by Ashley — May 6th 2009 @ 10:36 pm
I’ve hardly thought at all about my credit score. But then again, I know it’s excellent.

The reason it’s stayed that way is because I care deeply about staying away from the irresponsible behavior that would cause my score to go down a lot.
Comment by mbhunter — May 7th 2009 @ 2:52 am
Further to Ashley’s point about credit scores and hiring, besides bad credit creating a theft risk, employees with debt problems tend to suffer from major distractions which take away from their job performance, and sometimes require the firm’s intervention. I never used credit reports in hiring, but I can see the validity of it!
Comment by Richard Barrington — May 7th 2009 @ 8:13 am
@ Richard – some employers look for prospective employees that have a decent debt load in order to keep them motivated to sell. The sales profession has had this debt incentive mentality for some time.

The bottom line is that if you want to be on the credit-grid, go ahead and do what’s needed to maintain a healthy FICO score. If you’re going off-credit-grid, who cares? So what if you pay more for insurance or have to make a deposit with the utilities company…you’re still money WAY ahead because you’re completely debt free.

For me, I couldn’t care less about my credit score. I’m self employed, live a cash lifestyle, finance the biz on a cash basis, and won’t require another loan so long as I live. The net result…I don’t care. Besides, with all of the new PF sites like Thrive, Mint, etc., I think we’ll be seeing a more accurate scoring system of your personal financial health sooner than later. Always remember that FICO was developed for lenders, not consumers.

@ Nickel – when you say you use credit cards for convenience, what convenience do they offer above debit cards? I’m curious as to your perspective on this.
Comment by Michael Harr @ Wealth...Uncomplicated — May 8th 2009 @ 11:51 pm
Michael: Great question. The big problem with debit cards (for us) is that we try to keep a fairly low balance in our checking account since it doesn’t pay any interest. Yes, we could do better, but this particular bank is very conveniently located, has tons of ATMs in the area, etc. so we deal with it. We keep the majority of our money in an online savings account where it earns considerably more (though not so much right not with all the rate cuts). Anyway, given this setup, it’s far easier to use a credit card and not have to actively manage the balance in our checking account. Instead, we just make a transfer at the end of the month when the bill is due.

Of course, this sort of approach could be a recipe for disaster if you don’t have your spending under control, but… It works for us. On top of that, we earn much better rewards than are typically available for debit cards.

Comment by Nickel — May 9th 2009 @ 12:26 am
Hi,
I have a question on credit cards. I have 3 credit cards with the same bank – Chase. I am thinking of consolidating them by keeping open the one that has been open the longest and asking Chase to transfer the available credit from the 2 I am going to close to the 1 card I will leave open. Since I am closing 2 cards that were open for shorter periods and will have all available credit limits transferred to the 1 remaining open, this should have no effect on my credit score. Correct? I have zero balances on all accounts. This would just make my recordkeeping that much easier.

Thanks
Comment by John — May 10th 2009 @ 7:23 pm
Try getting a secured credit card or saving loans from your bank or credit union. This way, you can build credit withour creating debt, because you are using your own money.
Comment by Arthur Thomas — Jul 27th 2009 @ 7:02 pm
Try paying with cash instead of using credit cards or loans as much as possible. Do not let credit companies monitor your financial activities and life. They try to make your life dependent on magic credit score numbers. Use your real name. Do not use name covered by 720 or 850. Why not Roman ?.
Comment by Roman — Aug 2nd 2009 @ 9:34 pm

Type of rates
- CD rates
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- Savings rates
- Mortgage rates
Money to invest
< $10,000
Term
Up to 1 year
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< $10,000
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Loan Type
Refinance Purchase
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