VOL. 127 | NO. 179 | Thursday, September 13, 2012
Rays of Wisdom
Dana and Ray Brandon
High Credit Scores Not How You Win
By Ray and Dana Brandon
Ray’s Take What’s your credit score? I say, “Who cares!“ A great credit score simply means you have successfully borrowed and repaid a lot of money. Which in turn means you are great at loading on debt. That’s not exactly a goal to aspire to.
Your credit score says absolutely nothing about your financial security or success in achieving your financial goals. It doesn’t take into account your income, net worth, retirement accounts, investments, or your ability to live within your means. It’s a metric for lenders that focuses mainly on your payment history and the amount you owe; with the length of your credit history, the types of credit or loans you use, and how much new credit you have recently sought all playing a role in the total score.
If you are one of the many obsessing about your credit score, you are worried about the wrong thing. Handle your money correctly by staying within your budget and saving for the future and your credit scores will most likely always be just as good as they need to be. After all, it’s the person who is $100,000 in debt (but making regular, on-time payments) that has a great score. Is that really who you want to be? I hope not.
In fact, a good credit score can lead you to make some decisions that are actually very bad for you. Just because your score indicates you could get a $400,000 loan on a house doesn’t mean you should actually borrow the money – your budget or lifestyle might not accommodate the payments. By the same token, a new credit card with a very high credit limit just means that some lender is looking forward to charging you outrageous interest if you don’t pay off the balance on schedule at the end of the month.
Set up a budget, pay off your debt, and save money. Let the lenders worry about your credit score. You’ve got more important financial matters to attend to.
Dana’s Take If you have a bad credit score, it’s because you have been late with payments and have maxed out your credit cards. Those are two clear signs that other things are not right with your overall financial picture. That credit score is the least of your problems.
Pay down the debt you have as quickly as you can, and never think about your credit score again. Instead, focus your attention on what you actually have in savings and investments instead of what you can borrow. The more you build your net worth, the better off you are.
Borrowing is what “they” want you to do because that is where their profits come from. But savings and investments pay you – and that’s all to your future benefit.
It’s just too bad there isn’t a savings score out there. That’s something that would be really useful!
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.