Can you really get by without credit

Can you really get by without debt? Would you want to?

This was the question posed to me by the Money Mastermind Roundtable on July 10, 2014. I absolutely believe you can get by without credit – and it doesn't really matter if you want to or not.

See the bottom of this post for a replay of the show and my thoughts on this topic.

I pulled my credit score (really)

In preparation for the Money Mastermind Show discussion about I pulled my credit score.

Yes, really.

I don’t focus energy on my score. Instead, I focus my time an energy on:

  • Spending wisely and staying within budget
  • Spending time on my business
  • Spending time with my family
  • Spending time volunteering
  • Spending time mowing the yard
  • Spending time and effort on just about anything else

For educational purposes only

For you, the viewer, I post this video of me buying my credit score through MyFICO.com.

I also walk you through the FICO Score Simulator, a nifty little tool that helps forecast how certain financial products and events affect your score.

Hint: Most actions don’t improve your score very much – but missing a payment drops your number like a rock! The lesson to be learned? Pay your bills and debts on time and you will have a good credit score.

Going against the FICO algorithm

I checked my credit score about 2 years ago. It was 769. According to FICO's algorithm the more debts you have (and pay on time) the better your score. However, my credit report only shows six items – all of them closed since 2007 except our mortgage.

For me to start borrowing money, even on a credit card that I pay off every month, would not be worth all the trouble – especially since we don't plan to borrow money.

If we did need to borrow money, it would likely be for another home. We have a long history of being able to pay our bills on time so we should be bankable for a loan. I am willing to go through manual underwriting or use a service like eCredable to prove our credit worthiness for a house.

So, the moral of this story? Focus on your personal finances, pay your bills on time, and pay attention – not interest.


 

Replay of the Money Mastermind Show from July 9, 2014:

How to get a free credit report in under 4 minutes!
Basics Of Retirement Webinar

10 Comments

  • I always thought credit scores were so important until I read Ramsey’s The Total Money Makeover. Most people still consider their credit score to be a bit of a sacred cow. Live out of debt, and you won’t need a credit score. Radical thought in our society!

    • Steve Stewart

      Reply Reply July 9, 2014

      Me too Prudence. I never really looked at my credit report until after hearing DR talk about the “I love debt score” many years ago. When I realized the typical bills (electricity, cable, cell phones) weren’t included in the report then I started to realize that credit scores really are a one-sided measurement of debt.

      I hope you will watch live tonight at 10pm EST on July 9th.

  • For the last few years I’ve been going with the “I don’t care about my credit score” mantra as well….I pay my bills on time, and that’s all I cared about. Until we tried to refinance our home to get it out from under a bad financial product (ARM on primary, interest only on second mortgage). Then I cared about my credit score a whole lot…we got dinged on our interest because my credit score wasn’t quite high enough (due to our DMP). I still refuse to take any actions (get more credit cards, etc) specifically to raise my score – I will simply continue to pay my bills on time and my credit score will take care of itself. As far as not caring at all about my score, I must admit that there may be times when credit score does matter – not because you can’t get along without it…..but because it makes things more convenient when you may need credit (like a home mortgage). Yes, you can do manual underwriting if you want to make a point that you can do it without credit….but i’ve also heard it’s a huge pain in the you know what. 🙂

    • Steve Stewart

      Reply Reply July 9, 2014

      Hey Travis, you know what else is a huge pain in the you-know-what? Making $1,400 mortgage payments every single month without ever being late or missing a month.

      Maybe I’m a bit old school but I never thought that borrowing $150,000 was supposed to be easy. Either I do all this crazy-gyration stuff to build my credit score (and I’m sure I’d screw up and pay interest somewhere) or I can go through the manual underwriting process. At least eCredible is there to help me prove my credit worthiness. Then it’s all up to the bank: Do they want my business or not?

      That’s the way I look at it. Crazy. Unconventional. Weird, I know.
      But I ain’t broke anymore.

      Thanks Travis! Keep paying your bills on time and your score will improve – automatically.

  • Ryan

    Reply Reply July 9, 2014

    Great post Steve!

  • Chris

    Reply Reply July 9, 2014

    Great video Steve. I completely agree I almost never pay attention to my credit score I think I looked at it once in the last 2 years. What’s crazy is that I know people who will spend more time worrying about their credit and not enough time watching their spending.

    • Steve Stewart

      Reply Reply July 9, 2014

      So they are paying attention to the wrong thing? No way 🙂

      I will be paying more attention to my score in the year following our mortgage payoff. I want to see how fast it disappears. #soweird

  • Peter

    Reply Reply July 10, 2014

    Thanks for coming on the show last night Steve!

    I agree about not focusing too much on your credit score, instead just focusing on paying off any bills that you do have, and it will take care of itself. Really what it comes down to, and the biggest component of your score is whether or not you are repaying your debts. If you pay your debts like your mortgage on time, you’ll likely have a pretty decent score.

    We haven’t paid attention to our score at all really up until we were moving into a new house last year and needed a new mortgage, and we both had credit scores between 760-800, even though we only had 1 mortgage and 1 credit card that was used about once in 3 years. What did we do right? We’ve never missed a payment on anything and have never gone into default. Stay current and you’ll be good to go! Pay attention and not interest!

    • Steve Stewart

      Reply Reply July 10, 2014

      Well said Peter. Now, how can I get you to give up that credit card and get to become a Debt Free Fighter? 🙂

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