The whole world of personal finance advice-giving operates on a number of assumptions, and chief among them is that people will find the information interesting and useful. But for someone to find information useful, it needs to speak to their situation. But note, if you will, that an extraordinary amount of personal finance advice assumes you want to build up your credit score.
What if you’re different?
Some people don't want to borrow money. And reading horror stories about people in crushing debt who must painstakingly rebuild their lives certainly reinforces that feeling. FICO scores have only existed for half a century; they're a necessity for people who want to borrow money from massive financial institutions that will never know them personally, but not for people who wish to sidestep that whole process.
Creditworthiness, like credit products themselves, is a means to an end. Sometimes the risk-to-reward ratio is off, or you have no ends to meet. Keep that in mind and consider if you’re in one of the four times of your life when you shouldn’t care about your credit score:
1. When You Might Ruin It Because You're Stupid and Young
There's a good reason the CARD Act of 2009 banned the marketing of credit cards on college campuses with things like free pizza: 18-year-olds are dumb, will sign up for complex financial products in exchange for pizza, and might think that a credit card offers free money. Keeping teenagers away from credit cards is important for the same reason that keeping teenagers away from hard liquor and motorcycles is important; they don't know how to use them properly just yet. These are all things that most adults can use properly, once they learn about responsibility and consequence. But before that happens, this particular combination of youth and spending power can be very dangerous.
You can ruin your credit score for a long time by having access to credit at too young an age. You're supposed to be broke during college anyway. Access to a credit card might give you a false sense of wealth when you'd be better off learning how to properly budget, and generally growing upâ€"and, worse, you'll pay dearly for it later, when you're actually ready for a credit card.
There's no rush to establish credit with a revolving account like a credit card. Your credit score does take into account the length of time you've used credit products, but you don't need a perfect credit score by the time you're 24, do you? Odds are you won't have one if you get a card when you’re too immature for one, anyway.
2. You're Not Buying a House Any Time Soon
You need to be worried about your credit score mainly for large, long-term loans where a few basis points tacked onto the interest rate can mean thousands and thousands of dollars out of your pocket, spread out over its repaymentâ€"or, possibly worse, flat-out denial. But this is the only time when your credit score can really do serious damage to your financial well-being.
For revolving accounts, like a credit card, your rate is probably going to vary between about 10 and 24 percent. It's not pleasant to be near the upper bound of that range, but it also doesn't amount to a tremendous amount of money out of your pocket if you're dealing with small amounts of debt.
Anyway, it doesn't take a tremendous amount of time to build your credit up. Some can go from no credit, or even bad credit, to excellent in credit in just a couple years, so long as they're vigilant. It’s not as if home buying is a quick decision, so you should be able to plan ahead easily.
3. You Don't Like Borrowing Money in the First Place
This seems self-explanatory. Your grandparents got through most of their lives without plastic cards. In fact, they got through most of their lives without a lot of the plastic goods you take for granted. Today, many Americans even adopt a cash-only lifestyle to prevent incurring debt.
A good credit score is only a necessity for those who want to finance large purchases and get nice credit cards. Ironically, financing big purchases and using credit cards are two excellent ways to absolutely demolish your creditworthiness if you do it wrong. Those who do not play this game need not worry about this, unless they suddenly want to lease a car or buy a house.
Well then, see #2.
4. There Are Other Ways to Measure Creditworthiness
Equifax, Experian, and TransUnion are the three major credit bureaus, but there are lots of other companies that use alternative ways to measure creditworthiness of consumers and businesses. eCredable, for instance, is a new company founded in 2009. It tracks consumers' monthly bills like rent, utilities, cellphone, tuition and child care expenses to create a non-debt-oriented credit profile for its users. Payment Reporting Builds Credit (PRBC) does something similar, and Experian's RentBureauâ€"which, as you can see from its name, is part of one of the big threeâ€"tracks rent payments to build credit.
Already some credit bureaus understand the value of looking at non-debt financial obligations as a way of judging financial responsibility. Soon, perhaps, you won't need to get a credit card, against your will, just so you may buy a house at some undetermined point in the future.
Willy Staley is a staff writer and columnist for MyBankTracker.com. His columns cover banking, policy, and culture.
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