What Makes A Good Credit Score Good?

The Perfect Credit Score

I remember sitting in a middle-school classroom being shown how to write a paper check. Yes, that was many years ago when you learned how to type with black ribbon and whiteout instead of a keyboard and monitor.

For some reason I also remember my teacher telling me to get a credit card and make small purchases on it to “build credit”. It sounded like a reasonable process. What teenage boy or girl wouldn't love the chance to show their maturity level by proving they can borrow money and pay it off quickly?

I think the first time my credit score was ever used was for my first debt car in 1987: A 2-year old Subaru station wagon. It was $5,800 before fees and I was “getting a good deal on the financing”.

What the heck did I know about financing and credit?

Later, I stumbled into another situation where my credit score was used. This time it was for a mortgage on a $98,000 condo in the 1990s (oh my gosh, that sounds so ancient!)

I had never done anything more than pay my normal monthly bills and debts on time and only paid interest on revolving debt a few months out of each year (you know, when Christmas came and surprised me).

It wasn't until a few years ago that I begun to understand what a credit score was and how one-sided it has become.

What's crazy is this: People have become overly concerned about their credit scores.

Yes, CRAZY – and the craze is unfounded

While I didn't understand this whole credit score ecosystem until after having financed two homes and four vehicles, I can testify that I had never been offered anything but good interest rates.

Could I have done better? Maybe, but I couldn't scrape together $5,800 for a used car. How much trouble would I have gotten into by trying to game the system with multiple credit cards, a variety of loans, and “maximizing my credit utilization”?

I call BS on the whole “build your credit score” when a good credit score will do just fine.

What Makes A Good Score Good?

This infographic is a generalization, but you should get the point:

WHAT MAKES CREDIT SCORE

Pay your monthly bills. It'll be OK

The electric bill, cable package, cell phone service, and city services like water/trash have no affect on your credit score because they are not debt products. Only debt products are reported to the Big Three credit agencies.

Go ahead, pull your Annual Credit Report and see if any non-debt products show up. The only way they would is if you didn't pay your electric bill – and nobody is recommending that!

I never had a credit-building strategy, I just paid my bills.

I got a car loan and made the payments without getting ripped off on interest rate (although they could have gotten me on the trade-in – but that's a different topic).

I eventually paid off all my consumer debts and haven't had a credit card for 7 years. Do you know what my credit score was last year?

769 and $500,000 without breaking a sweat

Credit scores are not based on where you live or the color of your skin. They are not based on age, income, or job title.

I have a 769 credit score without any consumer debt or debt products other than seven mortgage payments that remain on our house. I know for a fact my credit score did not take into consideration the half a million dollars of liquid assets we have stored for retirement and other savings goals.

Am I worried about losing my credit? Nope, not when I spent my time and energy working hard, paying cash for things, and making savings a priority. Wealth-building has taken first place over building a stupid 3-digit number.

How to be credit worthy

Don't let peer pressure or sophisticated discussions about credit derail your financial foundation.

Avoid debt and spend your paychecks according to your budget.

Stop living 30 days behind by paying off your credit card every month and use cash or debit cards instead. Cut up the credit cards and pay attention to your purchases.

Finally, follow these steps and you will be credit worthy – even if you don't have a traditional credit score:

  • Pay your monthly bills on time
  • Don't apply for credit (other than a mortgage if necessary)
  • Pay cash for the things you buy (restaurants, entertainment, clothing, iPhones, cars, etc)

And if you still have questions about buying a home without a credit score look into eCredable here or schedule an appointment with me.

You can have a good credit score with little effort. You can build credit by increasing your available debt, or you can have the perfect score by not playing the credit score game.

The Birthday Call - Happy Birthday Tom Corley @RICHHABITS
Spend Your Values and Live Debt Free On Low Income

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