Financial Freak Show

Those of you that have followed me may be familiar with one of my personal goals. A zero credit score (let me clarify I said a zero credit score…not a low credit score). I want to take a few minutes to explain myself on this one.

To many people the idea of a zero score this sounds like financial suicide. But for those that subscribe to the debt free FinancialFreak way of handling your finances you see the bigger picture beyond the FICO score, and can also see well beyond the “pay off your debts” talk into a more prosperous future where you stack up money instead of stack up bills. Again let me clarify I said a zero score not a low score. Though they sound similar these are two completely different things. A low score shows that you’ve been financially irresponsible (that’s not good a good thing). A zero credit score shows that you do not use debt and in turn do not have to repay those debts (that is a good thing). The credit scoring system is used to calculate the likelihood of a borrower paying back what they borrow, sounds simple enough to me. Credit scores are based on many things amount of debt, debt to income, number of outstanding debts, payment history, types of credit, available credit, blah, blah, and blah. Simply put the score is a number used to represent your borrowing history and your payment history combined with a dash of “what if” representing the near future.

First off let me start by saying the credit scoring system, in my opinion, is greatly flawed and very subjective in almost every instance it’s used. The biggest issue I have is that it does not take into account one of the most basic thing needed to properly repay outstanding debts – the amount of money  you have in your possession (assets) and how much money you have coming in. Now to me the first things I think of if when I make a loan would be “does this dude have a job and how much does he make?” If the answer to that question is yes and more than enough then we can go in to the person’s past repayment behavior.

To prove my point read these quotes from the myfico.comexplanation of what the credit score ignores – remember these are quotes from their web page

FICO ignores your Salary, occupation, title, employer, date employed or employment history

And another:

Any information not proven to be predictive of future credit performance

So according to FICO your “Salary, occupation, title, employer, date employed or employment” are not “predictive of future credit performance” – No wonder our lending institutions are falling faster than Dick Cheney’s hunting partner! And to think most people are making major financial decisions based on the effect it may have on this scoring system. I’m sorry, but I think “Salary, occupation, title, employer, date employed or employment history” are key factors in someone’s ability to repay money I lend them. Honestly I highly doubt they believe your income and assets are not proper indicators of your worthiness. The truth is they have no easy way of acquiring and selling this information legally.

After doing quite bit of research I have decided that there is very little need for a high credit score in my life. True, the last time I checked my credit score it was very high. This was due to the fact that I carried a good amount of various debts for many, many, years and never missed a payment The issue I ran into was that to better pay my debts, and someday create some wealth (hopefully), I had to eliminate the debts that were supporting my high credit score and eliminate them permanently. So the effect this has on my credit score is the more money I have (because I’m not supporting monthly debt payments) the lower my score will fall. So I figure if that’s the case lets shoot for ZERO! I know that may sounds crazy but unless I plan to borrow money often and repay it on regular basis there’s really little benefit in working to support this score.

So unless you plan to borrow and payback money again and again and again why would you base financial decisions on supporting your credit score? Remember these are companies that believe “Salary, occupation, title, employer, date employed or employment” is not “predictive of future credit performance.” I think I’m going to work on getting money and keeping money not work on borrowing money and paying back money.  Oh, and I guess this also means at some point I’ll have a paid for house too, and to that I say “how bitchin’ would that be!”

For more on this topic my post Issues with a Zero Credit Score I discuss some of the potential setbacks I may face with after completeing this goal

So how do you feel about the credit scoring system and your credit score in particular? How do you plan to manage you credit score in the future and why?  - go ahead call me a FinancialFreak, its okay…I can take it