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Your Credit Score - A Poor Metric for the Responsible

By Edited Feb 20, 2016 0 0

FICO - Fair Isaac Corporation

Yes that is right. A company created a mathematical means to define whether you are worthy of borrowing money. A number that defines your entire borrowing capability, and now even used by some companies to determine whether they should hire you. Think about it this way, a FICO score is a number that is based on how much, how often and how well you borrow and repay debt. So if you have a certain number of "active" credit cards, a loan or two (say a car or mortgage), and you are on time with all your payments, you are a great candidate to incur more debt. FICO doesn't care whether you make minimum payments or more than minimum, it doesn't care that you actually save money and pay things with cash you have in the bank. FICO doesn't care if you run a business without taking out a small business loan. FICO doesn't care about the responsible individual in America.

In the past 5-8 years, American's have had the greatest access to borrowed money in the lifetime of this country. Millions upon millions took out loans, signed up for new credit cards, bought cars on loans, and took out mortgages only to find themselves in so much debt that making minimum payments is a struggle. But guess what, those people have the best FICO score and can borrow more, driving the country into more debt and potentially getting bailed out by government programs that tax the responsible.

Those of you that are responsible with your money. Responsible in that you save and live below your income (i.e. within your means), you will have the worst FICO score. If you were to decide to take a loan out, in which payments are so easily made you can use your school lunch allowance to cover, well you're out of luck. Your FICO score will be too low to qualify.

Oh, forgot. You want to change jobs? You have brought in all sorts of profits for the current company and they won't give you a raise? The company down the road seems a great oppurtunity, but they run a credit score on you only to find your score is low and all of a sudden you are a risk to the company, sorry. How does that make sense?!

In my personal opinion, this country has woken up, temporarily at least, realizing the debt they have incurred has become too great. Now these same borrowers have cut back on all purchases wreaking havoc on our taxes and small businesses. Fortunately, prices will come down, the cost of living will likely come down and those that pay with cash will have the upper hand at home. But beware, the governmenet is watching, and taxing the responsible make sense in their eyes.

All of us need to look at our personal expenditures. Put food on the table first for your family. Pay your utilities for comforting your home or apartment, pay the rent and the mortgage. Then sit back and determine what is left. If the remaining balance is negative. It's time to move, its time to sell the car, the useless goodies inside the home, cut the cable tv, the smartphone wireless bill, and summer vacations until you get yourself settled.

The FICO score is not a ticket to smart personal finance. FICO is a means to incur more debt. Its a useless number and banks or other lending institutions should fall back on down payments, strict income requirements, and no other outstanding loans. FICO scores simply allow people with 10 credit cards totaling $50,000 making minimum payments, the oppurtunity to open another credit card.

Take the high road; save, live within your means, and take care of your family. Pay cash. The simplest and most common sense approach to personal finance.

If you have credit card debt, can you answer this. Do you remember what you bought?

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