Your Credit Score: Why It Doesn’t Matter

From out friend at Hypeline.org

Matt Lamb

Our awesome staff writer Stephen Rowe wrote a Hypeline articlerecently about why your credit score matters and how to build credit.

But I disagree (it’s okay, we believe in free-speech and debate over here at Turning Point, so neither of us needs a safe space or trigger warning)!

The main argument for having a credit score is so that later on when you want to buy a house or a car, you will have a good credit score and be able to secure favorable terms on a loan.  A common way to build a good credit score as Stephen points out is to use a credit card for small purchases such as gas or groceries, and pay off the amount every month, showing a good history of making payments on time.

But, do you really need a credit score to buy a house or a car (or at all)? Nope.

Car– The argument for building credit is so one can receive good terms on a car loan. But why do you need a car loan? Let’s say you want to buy a brand-new car (itself a bad idea) for $35,000. If you plan ahead and need to buy a car every 5-10 years, you can easily save this amount and pay for the car in cash. And if you can’t save $35000 in 5-10 years, then you don’t need a $35000 car!

Home– A home is harder to save for than a car, because they are generally more expensive. But you can still obtain a mortgage without a credit score, as long as you prove a recent track record of paying bills and being steadily employed. It’s called manual underwriting and it’s explained here. Basically, the bank or mortgage company looks at your recent financial responsibility (paying a landlord on time, receiving a paycheck regularly, showing a record of saving money) and then determines your mortgage terms from there.

While the idea of making small purchases and then paying off the purchases immediately is in theory financially sound, the statistics about credit card use show that for most people, a credit card becomes more of a weight on their back instead of a tool for building wealth.

1) In 2014,  34% of Americans had credit card debt month-to-month (meaning they weren’t paying it off every month as suggested)
2) 68% of college students had some credit card debt
3) The average credit card debt for adults with credit cards is around $5500
Source: http://www.creditcards.com/credit-card-news/credit-card-debt-statistics-1276.php

Follow the author on Twitter @mlmb24

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