Have you ever wondered why FICO exists if their mission (I am using mission loosely here) is to determine your credit worthiness based on how much debt you have? Does that makes any sense?
In order to boost your overall credit score you have to play the FICO salsa… You have to get a credit card, put unsecured debt on it; meaning buying frivolousness items that really, you should be paying cash for. How many of you were college students and put the 99 cent soda on your card back in the day, now 10 years later that 99 cent soda has cost you about $500. ME! OK, I am being slightly sarcastic; but I really want you to see my point here. Then you have to boost your credit worthiness by getting yet another debt account, maybe a car, a fancy purse, or something else that you can’t afford to pay cash for but you HAVE to have it AND it will fit on your card, SCORE! Our whole mindset towards cash and debt is so warped that we actually think that having debt is a great thing!
Lets look at fictional character Greenlee Anderson, she is 52, makes about $35,000 a year and has $45,000 in debt, lets say 10K in credit card debt, 15K in car debt, and 20K in a home loan with a credit score of 760. She is on cloud nine, because she has a rockin’ credit score and can buy anything she wants, on credit… WHAT? Lets ignore the fact that she is only 10 years away from retiring and she owes over a year of salary in debt… But, it is OK, because house debt is good debt right?
Now lets compare to fictional character Joe Smith, credit score of 600, who has zero credit cards, zero late payments/defaults on his credit record, and pays for everything with cash; including cars and other large purchases. Why is it that he is deemed a credit risk? As Dave Ramsey states, “He doesn’t play kissy face with FICO”. But Why is our system allowed to be set up this way?
Now lets say that Joe Smith was turned down a job based solely on his “credit unworthiness”? Lets say, Joe Smith was denied a job with “ABC Make Believe Financial Services” based on his lack of credit, wouldn’t one think that he could sue FICO for defamation of character and slander? Follow me here, the only reason why he is considered a risk is because he doesn’t have any debt, he chooses to stay debt free. Shouldn’t his behavior be rewarded, rather than punished?
What is wrong with this picture?