Is Your Credit Score Just a Number?

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Recently I’ve had a lot of encounters with people talking about (or worrying about) their credit scores, and it made me think a lot, so here are my thoughts:

First of all, why is everyone so obsessed with credit scores?  Well, the main value of a high credit score is low interest rates on loans.  So if you plan on buying a house or a car or taking out any type of loan, it’s in your best *interest* (eh? see what I did there?  INTEREST??) to have a high credit score.

But is your credit score really the best indicator of your financial situation?  My short answer?  NOPE!

I know of 3 people who all have about the same high credit score and we all have VERY different financial situations, ranging from very little debt, to medium debt, to very high debt.  But it doesn’t matter.  As long as you’re on time with those payments and you have a credit history, your score goes up.  Some of you may be drowning in debt, not able to sleep at night wondering how you’re going to pay it all off, but your credit score is probably pretty up there.  Do you think the credit score accurately depicts your situation?

On the other hand, I know of someone else who has owned businesses abroad and does not have any credit history in the US.  His businesses have been pretty successful and he is flush with cash.  He could buy a car and a house outright.  But his credit score is mediocre to low.  He can’t even get a credit card to boost that credit.  His only option may be to take out a car or home loan, that he doesn’t need, at a  high interest rate, to prove himself to the credit bureaus.  This makes me so frustrated!!!  Here is a person that is so successful financially, but in the eyes of the American consumer society, he is “less than.”  My finance books have touched on this.  The crazy dichotomy of saving lots of money, being able to pay for everything in cash, and your credit score tanking because of it.  BUT, at that point, what’s the real use of a credit score?

And maybe that is when you truly make it, friends.  When your credit score goes down for the RIGHT reasons – no debt!!  And you have no need for a high credit score anyway because you’ll never need to take another loan out again!  Now, THAT is a crazy twisted unexpected definition of financial freedom!

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