February 21, 2010
FICO Debunked
Credit scores and credit bureaus and FICO look like a three-headed monster living under your bed. Pull back the covers and see if you even care what your FICO score is this month.
So why are we (the average consumer) brainwashed into taking on debt and maintaining credit cards to keep our FICO scores high?
Shopaholics have been schooled to buy first, and pay later. Or maybe even hide the credit card statements. Out of sight, free to shop.
A FICO score can only help you get into debt, not become wealthy. Here are 5 reasons why FICO does not really matter:
1. Your FICO Does Not Cover the Nut.
Credit is worthless if your bills are covered by your income each month. If your income falls short, you have bigger problems than a low FICO score.
2. No Control.
Trying to raise your credit score, as the countless credit repair books will teach you, is a thankless task. At any time, the credit bureaus can alter their algorithms and change their emphasis to change your score – all beyond your control.
For example, your wife pays the landline phone, and you pay for the cell phones. Her score goes up, yours does not. You might write the checks for everything, but if the right bills (mortgage, electric, phone, gas) are in your wife’s name, she gets the FICO boost.
3. Inaccurate and Incomplete.
Your credit score is like an idiot savant. It knows your payment history and debt-to-credit ratio. That’s it.
What’s missing? Your income. Someone who just landed a big paying job gets no higher FICO score. Someone who pays cash (credit ghost) who has no debt is treated like a leper. Mistakes also happen. Credit bureaus are notorious for confusing similar names and keeping bad information on file even after notification by effected consumers.
4. Excessive Debt.
All a high credit score can do is tempt you into taking on too much debt. For the person who lives debt-free within their means, a FICO score is worthless.
If you have a high credit scores, banks will flood your mailbox with offers to give you more credit.
Easy and credit should never come together in a sentence. How many products have you bought that you did not need just because financing was available.
5. Can’t Take Credit Score With You.
When your eulogy is read at your funeral, trust me, your FICO score will not be mentioned.
Living a prosperous and wealthy life is a desire of most humans. I don’t mean just spiritual wealth, but real dollars. No man or woman can live to the fullest without money. Having a debt master will surely burden your life.
Eat real food. Drink fine wine. Make love to your wife before the sun comes up.
Live happily within your means.
Don’t lose a moment of your life to worry about a mathematical score your cannot control.
Look for more contrarian financial strategies at Burn Down the Freaking Mission.
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