FICO Score and Credit Cards – The Way I See it

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This brief post is about one thing – my stance on FICO score and credit card use.  You can take it or leave it, I’m just gonna lay it all out there for everyone to praise, pooh-pooh, or pout about.

So by all means… feel free to butt in.

A Little Background

If you want to read more about the background of our situation with credit cards and credit card banks please see any or all of the following previous articles:

I think that should cover it.  For those who want to read up on it… go for it, otherwise let’s get on with it.

How I View FICO Score and Credit Card Use

This is actually just a copy job of a comment I left over on MoneyUnder30.com.  David, the site owner, recently published an article encouraging visitors to radically re-think their credit card use.  To summarize, David encourages us to close all credit card accounts except for two, and says we should try to keep our oldest card and highest limit cards open.  He also advises against using credit cards for rewards – which I highly agree with!  David’s advice is solid – if – you are trying to use your credit cards to build and maintain your FICO score.

Here was my response to his post, which basically captures our stance on the  use of credit cards and how my wife and I feel about the FICO score itself.

Here is a brief synopsis of my sitch (situation):

We have no credit card debt. We have no temptation to use them, and have no problem setting them aside or using them responsibly. We choose not to use them for reasons that go beyond finances. We kept one card open, but we don’t use it either.

Okay, you’re probably with me so far… but here is where I’m going to lose you:

We don’t care about our FICO score.

Lost you didn’t I? I know there are all kinds of reason why we should care… but… we don’t. I know only about 5% of people will understand this point of view. The other 95% do not need to list the 15 reasons why you need FICO… we already know them. We still don’t care.

I could go on about how we are never going to borrow money again, or how we don’t care about how FICO effects our insurance premiums… but the most concise explanation I can give in an already long blog comment is to say that it is a form of protest against an industry that we do not believe in.

And I went on to say…

Some will think I’m crazy, some will think I’m an idiot, still others will think I’m right on.  I think I’m doing the right thing for my situation.

Here’s the cool thing about not caring about our FICO: they’re still going to go up, or at least stay where they are. Here’s why:

We have two mortgages on credit, two student loans on credit, and a Lending Club loan on credit. We repay all of them on time every month… always have, and Lord-willing… always will.

So as I thumb my nose at the CC banks and their tangled and undesirable scoring system… I will retain and maybe even increase my score.

I call that, “beautiful irony.”

What Do You Think?

I don’t really have much else to say on the matter so I’ll shut up and open it up for discussion.

Go.

*******

photo credit: pasotraspaso



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1 Baker

I also don’t care about it. I’m not going to trash it for fun, but I’m not going to let it have any influence over my financial decisions. I don’t want it as a justification why I do anything not consistent with my values.

And by the way, Courtney and I have cut up AND canceled all of our cards for almost a full year now (since the last was fully canceled). We froze both of our credit reports (even more peace of mind) and you know what? My score has gone up a couple points since then.

Would it have gone up even higher? Maybe/maybe not. I don’t lose sleep and am willing to make an extra phone call to find an insurance company that doesn’t use FICO if needed. And no… not for the rates. But for the principle of the matter. 🙂

2 Daniel

I think that if having credit cards creates a way to get into more debt, it’s completely fine to cut them up and cancel them. I saw in your post yesterday that you are making payments on your various debts (even if it is just minimum payments), so being consistent and not missing those payments will only help.

If you guys are so against credit scores, what to you think about piggybacking on family members with better credit and longer credit histories? I am an authorized user on my parents account, and it shows that I have a 30 year history. Which is interesting, being that I’m only 22. My score is surprisingly high for someone my age. I haven’t done anything to get into debt other than student loans, but I also don’t have a good credit mix. It seems like this one factor is making a huge difference for me. Is this sticking the man in it’s own way?

I have no problem with credit scores and am having a hard time understanding why you guys are so anti-FICO. Sure, you don’t need to let it control your life in any way, but what’s the harm in sticking a credit card or two in your pocket if you rarely use it? The advantages seem to outweigh the consequences.

Baker, I’m very impressed that you’re able to go cash-only, which I would imagine was a big struggle at first. On a recent podcast you talked about it (PFH?), but didn’t you say that since you have a kid and are traveling, that you do have one card, for emergencies only. Am I misremembering?

3 Baker

No, I don’t have a credit card even while traveling.

We had a discussion about how I use my DEBIT card while traveling for some expenses (back home) that I obviously can’t pay cash (although I try to do automatic bank transfers and/or payments first). 🙂

I’m not necessarily Anti-FICO, in the sense that I think they are an immoral company. I just think the system is stupid, I know it’s unnecessary to focus on it, and I love the peace of mind that comes from CANCELING the cards rather than leaving them hanging open.

Thanks for the response!

4 Daniel

That makes more sense. It must be nice to make everything official and not have it hanging over your head. That stuff stresses me out. I imagine the feeling is similar to finishing off a loan.

5 Matt Jabs

All great questions Daniel. Based on the way the credit industry exploits the poor and ill-equipped, supporting it violates the principles I stand on and so I cannot do that. Companies who prey upon the weak and poor will always be companies I avoid. The next one on my list will probably be insurance companies so stay tuned for that discussion. I’m sure it will be a doozy!

6 Bryn

Matt, eliminating debt and staying away from tools of debt (credit cards) is a respectable thing, that God does honor.

No company can exploit a person for using or buying a product that the customer willingly decides to purchase or use. By the definitions you seem to be using, anybody that overpays, or purchases something they do not need is being exploited.

I would argue that really the only way exploitation of an individual can occur is through coercion. Unless an individual has signed a contract with a company there is absolutely no company that has any coercive ability over an individual unless they willingly enter into it.

In fact, the main earthly entities that we have no say in their ability to coerce us, are government and our parents. Parents eventually lose coercive right, however government always has this ability over its citizenry.

You say that “supporting it [the credit industry] violates the principles I stand on..companies who prey upon the weak and the poor.” No company can fully defend itself against consumers buying their products when they can’t afford them, or consumers entering into agreements they can’t honor.

The battle here is not against the credit industry or insurance companies, it’s about helping people apply biblical principles to how they spend and use their money. After all, the very first people to go into debt were Adam and Eve when they ate the forbidden fruit, since then we have all been in a debt we can never repay. A debt that can only be repayed by making Jesus Christ our Lord and Savior. God hates debt, but he allows it to occur for our benefit.

7 Matt Jabs

Hey Bryn, thanks for stopping by and weighing in.

It seems the perspective you’re coming from is one of why did debtors get into debt in the first place? That is an excellent point to bring up. Personally, I went into debt due to my own ignorance and lack of focus. Because I was lax, I fell victim to the woos of the banks and their credit offers. I take full responsibility for what I did then, and for what I’m doing now – repaying old debt and avoiding new.

For others reading – I think Bryn’s last point about God allowing debt for our benefit relates to the fact that God will allow us to go through hard things in order to bring us closer to Him. So while according to the Scriptures God does not condone debt, he will allow Christian’s to be taken by it as a chastisement for disobeying his commandments, and as a punishment (having to repay the principle & all interest).

So while I take full responsibility for my debt, the morality of the banking industry is still abhorrent. Therefore I continue to urge people to avoid it and to avoid debt altogether.

8 Bryn

Thanks for your reply Matt.

The morality of every industry is abhorrent, or at least has individuals or people in it that are abhorrent. The fact that a particular area of commerce has individuals or businesses that are abhorrent in no way means that the service offered by this industry is not useful or beneficial for society. Please pick any industry and I will show a business or individual in it that is abhorrent.

It should be noted that while God does hate debt, I believe that God punishes misuse of credit, not using credit within his principles. Just as God hates divorce but does allow it in certain instances.

God allowed the Israelites to borrow and extend credit. Which is why every seven years during the year of Jubilee they were to forgive their debts.

The principles Christians should follow for borrowing money are…
1. Borrowing should only be occasional.
2. Avoid signing surety on a loan.
3. Stay out of long-term debt.

Lastly, every time you lend your money to the bank (checking/savings account, CDs, etc.) you are encouraging them to lend to others. If you truly believe this system is completely abhorrent, being consistent would mean not using banks for anything.

9 Matt Jabs

You make some good points, but since this article is about FICO scores and credit cards we’ll leave off here and stick to those topics in the comments so as not to throw off the topic at hand.

10 Lakita

I see your point of not caring…can’t say I’m there yet. However I hope you won’t ignore your scores and reports because anomolies can often be indicators of identity theft.

11 Matt Jabs

I do exercise my legal right to 3 free credit scores/year and usually spread them out of the course of the year so I can stay on top of their accuracy, although my main defense against identity theft is through prayer.

12 Austin

You’ve got yourself covered from all angles so I don’t really see how anyone could disagree. Especially since your argument is grounded in a moral stance.

I care a little too much about FICO, but I think it just stems from being new to finances. I’m sure I’ll mellow out as time wears on…hopefully 🙂

13 Matt Jabs

I wish you all wisdom Austin. I encourage you to study how the banks target us to earn profit. You will undoubtedly walk away in peaceful and happy rebellion against their ways. Follow this YouTube search for Elizabeth Warren – she is a rock and a fountain of true knowledge in this area.

14 Austin

I guess it’s like oil or the meat industry. You tend to just glance over the details without really thinking about what’s happening behind closed doors.

Thanks for the link.

15 Matt Jabs

Definitely. And for the record, we only eat meat that is raised right. We purchase 100% grass fed beef from a local Amish farmer. It is insanely lean, healthy, and delicious… blows away store-bought “meat.” Cheers man.

16 David @ Money Under 30

Matt, you’ve done a great job of explaining your stance and, as I said in the comments on my post, I might do the same thing, but I admit I don’t have the guts to do something that might hurt my credit…at least not yet.

My wife and I are eying moving to a bigger home in the next year or two, and so we’re nervous about keeping our credit scores healthy, especially with today’s tightened lending standards. After that, I hope to not to give my credit score a second thought for a decade!

Because I really do agree with you and Baker that it’s STUPID to play by this game just because FICO or any of the other bureaus say “jump”. I just get the sense that—better or worse—most people are still playing.

Congrats again on being a rebel—perhaps a very smart one!

17 Matt Jabs

As you well know, if you plan to borrow in the future then the higher your FICO the better. Of course my advice to everyone is never to borrow! 🙂 That may sound extreme to some (as I mention in the post) but that is just because those who see it as extreme are looking at the world through shades tinted by the massive marketing campaigns of lending institutions over the last 6 decades.

It is also worth mentioning here that in 1929 only 5% of American’s had mortgage debt, and that was the only debt taken on. Perspective is everything!

Thanks for the words of encouragement David.

18 Peter

I think a lot of people really do focus way too much on the FICO score, thinking that it is the end-all and be-all of their financial life. I tend to lean towards the Dave Ramsey end of the spectrum – and agree with him when he calls it an “I love debt score”. How do you get a FICO credit score? By getting into debt, making payments, having open credit cards etc. If you pay cash for everything and don’t use credit you won’t even have a credit score – like Ramsey.

I will freely admit I’m not completely away from every having to use my FICO again, but since we don’t really have any debt except our mortgage, and we don’t have plans on really needing it anytime soon for anything – I don’t worry about it at all.

Save up an emergency fund, cut up the credit cards, save up and pay cash for the things you need. That’s what i say.

19 Matt Jabs

“Save up an emergency fund, cut up the credit cards, save up and pay cash for the things you need. That’s what i say.”

Well said Pete!

20 Lydia

Unbelievable. I have a draft post about my frustrations with the fico score and our obsession with it. i don’t do anything to intentionally increase my fico score. i pay my bills on time because it’s the responsible, moral thing to do. if that increases my score so be it. like you, i have no plans on borrowing any add’l money and i definitely won’t do so just to keep the fico score active and calculating. i do pull my credit report once a year, but i never pull the score. since i’ve been a victim of identity theft, i review my credit report to make sure there isn’t any funny business going on again;-). great post, i’m with you 100% on this one.

21 Mr. ToughMoneyLove

I’m right there with you Matt. I’m a baby boomer and can honestly say that I do not know my FICO score and never have. Like you, I don’t care what it is. Any vendor who tells me that I am not getting the best price because of a credit score issue will lose my business immediately. The FICO score is designed to encourage the use of consumer credit and is now being used for purposes for which it was never intended.

22 Matt Jabs

I am dead set solid in my anti-debt stance and will never budge. Now my mission is to raise awareness of the exact things you just mentioned! Thanks for stopping by TML. Cheers.

23 Rick Cadden

Great comments! I do not care about FICO or credit score either. It is really a DEBT score anyway. The higher the number the more debt you can borrow. My wife and i are on a cash only basis and it works great and saves us lots of money to back in our pocket not the lenders. I paid off and cut up all credit cards and my score actually just went up to 726 from 676 when i had the cards and used them. I love paying cash and having FULL control of where is spend my money. If you are interested in this life style i highly recommend Dave Ramsey and FPU. He can show you the way and the course also covers insurance, investing, retirement, and lots more. Have a great day!
Rick Cadden

24 Matt Jabs

Thanks Rick. My wife and I are currently in week 3 of FPU and we love it. My score has also went up since I have gotten rid of my CC debt. Like I mention in this post, we are not without credit. Unfortunately we still have the debts listed above – but are trying our damnedest to get out from under all of them ASAP. Kudos on your stance… how awesome!

25 Credit Card Chaser

The REAL question is: if you did not ALREADY have “two mortgages on credit, two student loans on credit, and a Lending Club loan on credit” then would you still “thumb my nose at the CC banks and their tangled and undesirable scoring system”… 🙂 I would submit that if you did not ALREADY have all of the mortgages and loans that you needed then you would be making a huge mistake to act as if you did not care about your FICO score.

26 Matt Jabs

Well, I can only surmise as to how I would order my finances if I were in that situation… so I’ll choose to live in the present and stick with the position laid out in the post. 🙂

Thanks for bringing up the question though, I would of course hope that my position would not waver simply due to circumstance.

27 Mr. Not the Jet Set

CCC-

We bought a house two and a half years ago and have been “thumbing our nose” at FICO for around 5 years. We bought our house on a 15yr fixed rate mortgage with a rate so low that all my FICO-fanatic co-workers were jealous of it. So in our case, while we would have LOVED to pay for the house in cash, we in fact did not “ALREADY have all of the mortgages and loans that you needed”.

And yet having put all those cards through the shredder and canceling the accounts all those years ago did not torpedo our finances like so many fear-mongers like to suggest. FICO scores were just as good or better.

Now what if it had? What if it had been the terrible decision that so many suggest? Since we’d payed our mortgage and bills on-time or early for 2-3 years, we still could have qualified for an excellent rate under manual underwriting.

28 Matt Jabs

Honestly, I respect my creditors for their marketing brilliance, but I’m so happy to be walking off the field of play!

That is about the best way I can explain it.

29 Green Panda

After reading some books on FICO scores, we just decided to be responsible with our money. We don’t stress out too much on FICO scores, we just focus on keeping our credit report accurate. We were concerned a bit in regards to getting a mortgage, but it didn’t become an issue. Funny thing, my husband doesn’t have a credit card and his FICO is higher than mine.

30 Matt Jabs

There you go… more proof that the information being proclaimed about not closing your cards is just a bunch of fluff that is probably the end result of a fear-based marketing strategy.

Being responsible to stay on top of our financial records (credit history) is never an unwise decision.

What would you say if I were to challenge you to not go into mortgage debt? The entire concept of going into debt for our dwellings has only been practiced for the last 80 years. Prior to that everyone saved up and paid cash… go figure.

Honestly Laura, I wish someone would have presented this challenge to me before we hurriedly purchased our home. I view it as the single largest financial mistake of my life.

31 Green Panda

Interesting thought Matt about not having mortgage debt. I do think the ideal way is to pay cash for the house. We weighed on the pros and cons on it for awhile before we started house hunting and mortgage shopping.
We don’t feel bad about getting this mortgage because monthly payments are less than rent and monthly housing costs are around our rent’s prices.

32 Matt Jabs

Thanks Jeff. Jumping through their hoops by supporting something I do not agree with simply had to come to an end in my life, and it is a change I am very at peace with. I wish you all wisdom in your decisions.

33 Financial Samurai

Morning Matt from Lake Tahoe! I agree with most about not worry about your FICO score, that is, so long as it is above 700.

Whether you have 740 or 790, it’s all about the same. During the debt negotiation process i.e. mortgage originator, you can just ask for the best rate.

If someone has below 700, then I’d just work really hard at focusing on raising the level above 700 in a 12 month time period especially if credit is needed.

Poor credit can ironically save people from financial disaster!

Best, FS

34 Matt Jabs

It doesn’t matter to me what mine is. I’m just going to live my life on my terms. After all, where we’re heading… we don’t need FICO! 🙂

Cheers man.

35 Financial Samurai

“Roads? Who needs roads?!” 🙂 You’re up late/early!

36 Robert Espe

Going back to an earlier point, if anyone is aware of an insurance company that doesn’t adjust premiums based on credit score, I would be interested. I am not aware that such an animal exists.

37 BD

All these people who do not care about FICO or have no credit cards to bring their FICO up…how do they rent apartments? When I first got married, my husband and I had a heck of a time trying to find a place to live in SoCal. He had absolutely no credit history at all, having always paid for everything in cash, and I only had 2 credit cards, both of which were up-to-date. We were denied an apartment in a nice complex because he had no credit score, and my salary and score alone weren’t high enough to rent the apartment in my name only. We had to look high and low until we finally found a cheap apartment complex in a scummy area of town that would accept us based on my income and score alone, due to his lack of credit.

We ended up having to get him a credit card so he could build his FICO so we wouldn’t be caught like this again.

So, how do people who deal in cash-only rent apartments without any credit score? Especially those who are low-income and cannot afford to pay a year’s worth of rent up-front? FICO is important from time to time. (and for what it’s worth, I think it’s absolutely stupid. People who are responsible and pay in cash shouldn’t be punished for lack of a credit score.)

38 Matt Jabs

If renters ever have FICO related issues when renting they can help themselves by understanding the following info:

Landlords serve their property investment business better by being more concerned about a renter’s employment longevity, credit defaults and total monthly obligations as a percent of the applicant’s total income.

If you are going to rent, have all this information prepared for the perspective landlord and watch their “FICO concern” melt away.

Cheers!

39 angeleyes_214

Dear Matt:
I love your website and agree strongly with most of your views on debt. However, I cannot understand what seems to be an extreme on the FICO score. I totally get the fact that you do not want to be in debt, and I also feel the same in that I think the FICO scoring system is not fair. But how do you justify not wanting to have anything to do with it when it was used to acquire your student loans and your mortgages? What would you have done differently instead of getting these loans if you had to do it all over again? Also, do you not use this system when lending to others in your peer to peer lending network? If you do not, please let me know how you determine whether they are creditworthy or not. Please do not think I am judging you. I am just confused as to how someone who did not acquire a loan for a home could get one without spending years wasting money on rent when they could use that same money financing their home. And if they had no score, how would they borrow money from your lending group? I have no debt, no mortgage, and a couple of credit cards that I use to keep track of my finances and pay in full each month. I was considering investing in your peer to peer lending group, but cannot understand how I would know if someone was trustworthy in paying back without a decent credit score. I would be very grateful if you would enlighten me.

40 Matt Jabs

When you start investing in peer-to-peer loans you will see all the other factors that help identify which notes are a good investment. If I had it to do over again I would not participate in student loans or mortgages, and I won’t going forward. My positions are mine though so use your own convictions – either way, P2P is a great way to invest. Hope this helps. Blessings.

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