Are Credit Scores a Scam? (Money Guy Reacts to Dave Ramsey)

All right, let’s see what else Dave has got for us. Here’s a different question that he was asked on a slightly different topic. Don’t fall for the trap. Mark the trap is that you have to go build a FICO score, and the way you build a FICO score is you go into debt. Why do I do that? So that I can borrow money. Why do I go into debt? Why do I borrow money? So I can build my FICO score. Why do I build my FICO score? So I can borrow money. Why do I borrow money? So I can build my FICO score. It’s a dog chasing its tail, and suddenly you’re an American making $100,000 a year, and 100% of your money goes out to some stupid butt bank because you worshiped at the altar of the great FICO. And that’s what your friends are doing, and some of their parents are doing, but it’s not smart, and it’s also not factual.

Yeah, well, that’s what my brother said. He said that a credit score is just an “I love debt” score. That sounds like he’s been listening to the Ramsey Show. “I love debt” score. Brian, do you have a good credit score?

Yeah, I mean, that’s, would you say that you love debt? Would you say that’s an accurate assessment? I have a good credit score. I love debt. Is that right?

You know, I do. I have, I think it’s around 830 credit score. And I don’t remember going to any altars, kissing any rings or anything like that. All I did was I was good with my money, and I paid my, you know, if I borrowed money, I paid it back. I’ve made all my payments on time. I’ve made sure that I didn’t, you know, get out over my skis on debt. And that’s probably a great segue into understanding. I don’t disagree with Dave that the majority of Americans are absolutely horrible with debt. I mean, debt is chainsaw dangerous, is what I like to say. The fact that, you know, if chainsaws, when you gas them up, crank them up, they’re scary as all get out because, you know, if you make a bad move, you could lose a limb. They’re dangerous. But you know what? They are very good at cutting firewood. And as a person who had a childhood where we’d go split logs and cut down trees and remove fallen trees, I can tell you, you definitely want to show up with a chainsaw, even if it’s extremely dangerous. And that’s exactly what debt, I mean, I started at zero. And if I didn’t have debt as a tool, I think it would have really hurt me because I disagree that Dave said that the quickest path is debt-free because I get my own personal, I had to have a car to get to work, and I had zero. So I had to finance $10,000 after I got my first public accounting job. That was important. I don’t think a $1,000 car or $2,000 car was going to get me there reliably. I think about mortgages, I think about commercial loans. I think about all the ways that I’ve used debt. I think it can be an effective but very dangerous tool.

Yeah, I think what’s so interesting is Dave set this premise that I go into debt to increase my FICO score. I’m taking on debt so that my credit score could get better. I think that’s a little bit of flawed logic. It doesn’t have to cost you anything to have a good credit score. You may utilize debt, and if you utilize it the right way, if you’re having a healthy approach to it, having a positive credit score will be the result of behaviors you’re already putting into place. I don’t know that you have to do a whole lot to improve upon that. And he’s making it seem like people are out there getting debt with the sole purpose of doing that. No, if you’re someone who uses debt and you use it responsibly and you know how it works, you don’t have to go spend a lot of money; you don’t have to spend any money to actually be able to have a solid credit score that can help you in other areas and other facets of life.

What I think is the key takeaway from this is you have to know thyself, and you really, how disciplined are you? Are you a financial mutant, or are you one of those crazy people that has credit card debt? Because even though we tell people you can use credit cards, we say credit card debt, no way. I mean, it’s no-go territory. So you have to have a healthy relationship with debt to even make this. And look, we’ll go a step further. We actually do an annual survey of our clients where we said, “Hey, tell us,” because we work with millionaires all across the country. I want to know how many of you actually use credit cards, not credit card debt, but credit card use. And the results of our survey of our millionaire clients was that 99% of them use credit cards and pay them off monthly. So I go back to the fact that it’s the relationship to debt and how healthy it is that really should play into that. I don’t think FICO is the boogeyman because I have done nothing but just be good with money, pay the debts that I said I was going to pay, and my FICO score is great, which I get benefits on my insurance rates when I do utilities. I don’t have to pay deposits. When I go to buy commercial property, I don’t have as much problem in underwriting. I mean, there are some dividends to being good with money, and reaping some rewards. But, like I said, I didn’t go to any altars, didn’t kiss any rings. I’m not in debt, and I don’t pray to FICO. For more information, check out our free resources.