Some of the most frequently asked questions that I hear in my individual financial coaching sessions deal with credit scores. How can I improve my score? If I mess up, how badly is my score hurt? How long does it take for my score to improve once I get my act together and start having great financial habits? These are all very good and very relevant questions for many people. But one of my longer term goals in life is to have no use for a credit score and to not care one little bit what my credit score is.
First, here is a great article about 6 things you should know about your credit score. Let’s dig into these before I get into why I want all of this to be irrelevant in my life.
- There is no single number. There’s the FICO score, the VantageScore, and a credit score from Experian, Equifax and TransUnion. Those are at least 5 different numbers that could be considered your credit score. Each will be slightly different so if you understand that concept, you’re ahead of the game.
- Different scales = different scores. FICO ranges from 300 to 850 and VantageScore ranges from 501 to 990. Imagine if your number is 900 with VantageScore and you are applying for a mortgage with a company that uses FICO scores (maximum of 850) and they ask if you know your credit score, you say 900, and the lender gives you a quizzical look…
- Do a credit checkup. You can monitor your credit on your own, for free, by using AnnualCreditReport.Com and getting a credit report from each of the 3 credit bureaus once per year. Here’s what I do: I get one in January, May and September so that I’m never more than 4 months away from a new credit report. With 3 bureaus each giving you one free report per year, you can space them out across the year and have a relatively steady flow of information coming in.
- Free isn’t always free. A lot of websites out there tell you that you’ll get a free credit score if you register with their service. Be careful with this. Often, you get a score today without paying for it, but you have to sign up for a 30 or 90 day trial period for an expensive service that you must cancel quickly or that free score could cost you hundreds of dollars.
- Maintain healthy credit habits. Pay your bills on time, don’t use more than 25-30% of your outstanding credit lines and maintain a mix of credit types (car loan, mortgage, credit card, retail store card, etc.). Those healthy credit habits will boost your score.
- It’s a moving target. Each of the scores will change monthly, so don’t get married to your credit score. It will change frequently.
Now that I’ve talked about 6 important things to know about your credit score, here’s why I hope that in time I will have no use for a credit score:
I absolutely despise debt! I have seen debt (and if we’ve got to be honest, people’s behavior around debt issues) ruin people, families, and now countries. (Google “Greek debt” for some eye opening stories.) In my perfect world, and hopefully this can be the real world in a number of years, I would own a home with no mortgage, a boat and a car that have no outstanding loans, and enough investment assets to last the rest of my life. I plan to live a cash-based life and not owe anyone anything. Debt is not a part of my long term future. When I’m there, I will have absolutely no use for a credit score. It will be irrelevant to me. I won’t care if it’s 300 or 990 or anywhere in between.
I’m not quite there yet, with 3 kids and a long divorce process having altered my longer term financial plans. But, I will be there at some point. You can be too. Until then, I’m going to have to pay attention to the 6 points above……..