These days credit scores seem to be the focus of many of the decisions people make.
“Should I pay for this with my credit card?”
“I need to use my card so my credit score doesn’t go down.”
“Should I buy a car just to get a loan so I have better credit?”
Well what if your credit score wasn’t perfect? Would it really affect your life all that much?
Think about it. Cash is accepted almost everywhere, and the few places that don’t take cash will accept debit cards. You even get a discount for using cash at some places, so why wouldn’t you use it?
A credit score is merely a number assigned to each person that shows lenders their ability to pay back a loan. Having “good credit” just means you have a high enough credit limit that your $7,500 in debt isn’t more than 32% of your total credit limit. It means you recently have had some kind of debt, and used other people’s money to buy stuff.
Many people let this number play a very large role in their lives. It determines the method they use to pay their bills, how often they spend money, and even can drive some people to take out unnecessary loans and credit cards just to build credit. In other words, “I’m going to put myself in debt to show lenders I can repay them when I need another loan.”
What if we started paying cash for the things we bought? Sounds almost unheard in today’s society, doesn’t it? Being broke is normal these days – car loans are normal, and buying everything on credit is normal too. But why do we let the credit bureaus have that much power in our lives? They allow us to borrow their money and even allow us to pay them interest on that money.
Pretty awesome deal for them, isn’t it? But for the borrower, it means that $500 iPhone you bought on credit, could really cost you over $1,000 if you were to pay the minimum payment with about 5% interest.
I know some of you immediately have some objections to the idea of telling credit companies to “shove it”. Here is a list of the most common credit score myths:
1. I need a credit score to buy a house
If you save up a decent amount of money as a down payment – more than 20%, which is a bright idea anyway – a lot of credit unions or smaller financial institutions will work with you if you don’t have any credit. Also, if you’ve been with a bank for a very long time, they will usually find a way to help you as a means of customer retention.
If you can’t afford at least a 20% down payment on the house, It’s probably not a good idea to buy it in the first place.
2. Credit scores get you jobs
Wrong. Employers do not look at potential job candidates credit scores, only their credit reports. As long as you’ve paid your bills on time and don’t have anything to hide, there won’t be an issue.
Employers use these reports to see how well the person can handle their personal finances. They want to make sure you aren’t completely irresponsible with your own life, which could very well translate into irresponsibility in the workplace. But think about it, having no credit means you don’t borrow money on a regular basis and are in decent financial standing.
3. You need a credit score to rent an apartment/home
Not every landlord checks credit, it’s usually the larger apartment complexes that do this. While some homeowners will ask for a credit check, there are plenty of those that don’t.
If you find yourself in a position to be able to bargain with the landlord, see if they will rent to you for a slightly larger deposit put down in the beginning. Here is some more information about renting without credit.
4. You need credit to buy a car
If you’re looking to be financially irresponsible and buy a car you can’t afford, then yes, they will run a credit check and make sure you can pay back your loan. Refer to my previous post about why that new car is ruining your financial health.
If you need a new car, why does it have to be a $30,000 new car? What’s wrong with a car a few years old that is a less lot expensive and you can pay cash for?
It’s always a better idea to pay cash for cars and not worry about needing credit to get one. Just remember, cars depreciate in value very quickly so you could end up owing more than the car is worth at some point during the duration of your loan.
5. Credit scores can get you…more credit cards?
If you were getting along just fine without a credit card before, why open one just so you have the option of getting another one later on? Giving yourself an extra cushion in case something happens is a great idea, it’s called an emergency fund. Set one up and use it only for emergencies. You don’t need a card loaded with someone else’s money at your disposal in case something happens. Life does happen. Save for it.
I know many of you may still be thinking, “but having credit is so much easier.” Having credit also means you will end up paying interest of some kind on that money. Why not save some money, and end up actually paying less for those items that you want?
Please remember that it is not okay to go into debt and take out loans just to build your credit. The goal should be to get out of debt, not to get into more debt. Even if you say you are “going to pay off the card at the end of the month”. I don’t believe you. Don’t tempt yourself with other people’s money, you won’t come out ahead. The house always wins.
Don’t go into debt just to build your credit. Money does not grow on debt.
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