– Exposing the false beliefs of the financial world
Myth: You have to have a good credit score to survive life as an adult.
Truth: Credit scores are based on debt and you can live without one.
A good credit report is important, but a credit score is basically only needed if you borrow money. In fact, you can’t have a credit score unless you borrow money. Let’s take a look at what determines your FICO score.
35% is based on your payments history. 30% is based on the amount of debt you owe. 15% is based on the length of time you’ve been borrowing money (how long you’ve had a credit history). 10% is based on how much new credit you have. And 10% is based on the type of credit you are using.
So the algorithm that computes your credit score is based entirely on debt. That means if you had absolutely no debt, it would be impossible for FICO to calculate a credit score! You could be a multimillionaire and still have no credit score. The FICO score is in no way an indication of your net worth or how well you handle money. It simply means you’ve borrowed money relatively responsibly over a length of time.
Here’s what makes the credit score even more ridiculous: We place such an emphasis on borrowing money and how important it is to have a good credit score that we make life decisions based on how they will impact our FICO score. So we go out of our way to borrow money to get a better credit score so we can borrow more money and go deeper into debt so we can have a better credit score so we can go deeper into debt so you can… Sounds like a broken record, doesn’t it?
Nobody likes listening to a broken record. A loser sits and listens to the broken record and complains. A winner gets up and changes the record so they can improve the situation. Don’t be a loser and follow the lemmings. Stop worrying about your FICO score. Quit borrowing money and change your financial destiny.Matt Wegner is a personal finance, small business and leadership coach focused on teaching his clients the tools for L.I.F.E. (Living In Financial Excellence). Discover how to live without a credit score by requesting a free consultation or visit financialexcellence.net.