When your values and beliefs about money are tested

I don’t know about you, but I feel that there is always going to be a time when what you believe about money is going to be tested in real life. You see, it’s always easy to say what your beliefs and values are on money, but it is another thing entirely to actually live them out. My wife and I went through one of these tests the other day when it came to selling our home.

If you are a listener to our podcast, you know that my wife, Lisa, and I recently sold our condo and are in contract to purchase a new home later this month. It is both an exciting and stressful time as we have to wait for the sale to officially close, pack up all our things, and get ready to move them out. But we also get to look forward to buying a new home.

But that also brings us to our dilemma on our beliefs about money. You see, I’ve never been a huge fan of the FICO Score. That’s because I’ve seen plenty of people who have a “great credit score” but are struggling to stay afloat each month. Also I’m not going to be borrowing money as a way of life so having a great score to get a good interest rate doesn’t matter to me. Now I don’t try to harm my score by missing payments or anything like that; we make all our payments on time. But I don’t try to do everything that the “experts” tell me I need to do to achieve the best possible score. For example I don’t:

  1. Use a credit card and pay them off each month

  2. Have different types of accounts open

  3. Manage debt to show creditors that I use it responsibly

Instead my wife and I say no to debt, make payments on our current mortgage on time, and focus on saving money both for the long and short term.

But in the back of my head, I kept asking myself the question, “What if I am wrong,” because for our upcoming home purchase we are going to be taking out a mortgage and I was getting concerned that I wouldn’t get the best rates. Not because we have bad credit, but instead because we only have one account on our credit report and that is our mortgage which has been paid on time. In addition to that we are taking out a reasonable mortgage compared to our income and are putting a significant amount down. But what if some cronie at the bank decided that our credit score wasn’t high enough and deemed us a slight credit risk? What would we do then?

Well, I got my answer a few weeks back. I was doing some preliminary research in getting pre-approved for a mortgage. One of the lenders I was looking at pulled my credit report and found out that my FICO score was . . . . 780. For those of you who don’t know, 780 is a pretty good score and it allows me to qualify for the best mortgage rates out there.

While my wife and I were relieved that we would be getting the best rate possible, I also found it to be quite amusing. That 780 FICO score was strictly based on paying a mortgage payment on time, nothing else! I have never had a car loan, student loan, or a second mortgage, have not had a credit card in over 4 years, yet I still had a great score. That flies in the face of the conventional wisdom from all the so called “experts” who say you need to have different types of credit open and have a long history of using credit responsibly to show lenders that you can handle credit. That turned out to be one big myth that is simply not true.

Thankfully this was an example that proved to myself that what I believe and teach about money is true. The credit score is just a gimmick and not a good measure of how well you are doing at all. Instead, as long as I just continue to focus on paying my bills on time, paying down the mortgage, and having a nice down payment, getting a mortgage will take care of itself. So for those of you who are thinking of taking out a mortgage and are concerned that your debt-free lifestyle will hurt your chances, don’t worry. Spend your time instead on focusing on getting a home you can afford and having a good down payment and you’ll have no problems getting yourself a mortgage.

How about you? Has there ever been a time where your values or beliefs on money were tested? How did you respond?

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  • http://moneystepper.com/ moneystepper

    Nice post John. Having one line of debt (especially a mortgage) and paying it on time, together with never having a black mark on your account, is enough to have a satisfactory credit score.

    I personally think a lot of the discussion in the media about building credit rating is started by the credit card companies themselves to increase business.
    moneystepper recently posted..Personal Finance Podcasts – A review of business, finance & investing podcasts

    • http://jwfinancialcoaching.wordpress.com/ Jon White

      I honestly was a little surprised that my score was so high. I figured since I only had a mortgage and no other kinds of credit opened I would get dinged for that. Thankfully I was wrong.

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  • 2-copper-coins.com

    Something I would encourage you to consider is the fact that unlike you many people need to improve their score because of a bad previous credit history. It sounds like you have been rock solid with your money, and your score reflects that. Also if you haven’t had the time to develop your credit score doing some of those things the experts recommend allows you to catch up to someone who has a much longer credit history but isn’t taking those steps. This can be relevant for first time home buyers. I also don’t know if I would agree that a credit score is just a gimmick. There are a whole lot of free ways (paying to see your score is a gimmick) to check your credit score, and nowadays a negative score can even affect your ability to get hired for a new job (particularly one in finance).