All it tells you is whether you are good at borrowing money and paying it back. That's it. Here is how it is determined.
-35% of your score is based on your debt history.
-30% is based on your debt level.
-15% is based on the length of time you've been in debt.
-10% is based on new debt.
-10% is based on type of debt.
It does not factor in your income. It does not factor in your debt-to-income ratio. No savings accounts either. The only way to have a good credit score is to go into debt and stay in debt.
That is not how I want to live my life. I choose to not have any credit cards. Nope, not even one! I have an emergency fund.
New car? Yep, saving up cash for that purchase. Buy used! I would rather buy a beater than pay a car loan.
Do I have any debt? I do! My last debt is my mortgage. It hangs over my head.
Why I don't care about a credit (debt) score
August 12th, 2014 at 01:02 pm
August 12th, 2014 at 01:17 pm 1407849443
August 12th, 2014 at 01:41 pm 1407850872
August 12th, 2014 at 01:47 pm 1407851263
Dave Ramsey went broke because of debt. If he didn't have debt him being arrogant and overconfident wouldn't matter. He is a twice made self millionaire. Made mistakes and is helping others.
You are free to your option. I can respect that. I don't have to agree.
August 12th, 2014 at 01:50 pm 1407851410
August 12th, 2014 at 02:03 pm 1407852223
Leveraging debt doesn't necessarily mean you can't afford the purchase. You want a new car? Sure, save up $35K before you buy it -- but then take out a six-year, 0% loan on it and put the $35K into an investment account making conservatively 5% per year. (If you've got a good credit score, you can get those kinds of loans.) If something bad happens, you've got the money to pay off the car loan right then and there, but if not you'll come out roughly $12,000 ahead.
You certainly don't have to agree, and if you want to live 100% debt free more power to you, but of course your opinion doesn't work for everyone, and many people are able to responsibly use debt (and the resulting good credit scores) to considerable financial advantage.
August 12th, 2014 at 02:28 pm 1407853729
This is my personal journey. Great feedback with different perspectives. All is welcome!
August 12th, 2014 at 02:44 pm 1407854697
August 12th, 2014 at 03:29 pm 1407857388
I agree that most folks do not understand debt or how to use it wisely to grow their assets. The folks in the Millionaire Next Door were business owners and the like, many of whom used debt to build their businesses and personal assets. They also lived in the same houses for decades, drove older, conservative cars or vehicles that were related to their businesses, stayed married to the same person for life, invested money in the stock market and/or in real estate, invested in educating their children, and generally lived lives that were not wealth consuming.
My point is if you are conservative with risk and knowledgeable about what you are doing, debt is a useful tool. If you use debt unwisely, then you should not be using it at all.
August 12th, 2014 at 03:50 pm 1407858655
August 12th, 2014 at 04:41 pm 1407861676
You are an intelligent, thoughtful person, and your attitude about debt has helped you get to a better place in your life. Being a little less dogmatic about debt in the future might also be helpful to you.
August 12th, 2014 at 04:47 pm 1407862024
I have read The Millionaire Next Door, albeit years ago, but my recollection is similar to that of Another Reader's -- the millionaires used debt wisely to increase their income and/or assets.
August 12th, 2014 at 05:37 pm 1407865033
My strong opinion against debt is going to be the driving force to just push me further into financial peace.
You know the feeling you get when you pay something off and no longer have to deal with that? It could be a family loan, car payment, house, student loan or credit card. You no longer get the annoying bill in the mail from that company. The sigh of relief when you get to use that money somewhere else in your budget.
Have you ever lost a job or been through a divorce and thought geez if I didn't have this $1200 mortgage, $600 car payment, $150 credit card bill, $300 student loan.
It is definitely something to think about. How would that feel?
August 12th, 2014 at 06:42 pm 1407868956
The car will depreciate whether you pay for it up front or over time. So at the end of six years, you can have a car worth $18,000 and $18,000 in the bank, or you can have a car worth $18,000 and $12,000 in the bank. Which would you rather have?
August 12th, 2014 at 06:44 pm 1407869048
August 13th, 2014 at 02:49 am 1407898182
March 23rd, 2017 at 06:18 pm 1490293089