Dave Ramsey’s Take on Credit Scores: Separating Fact from Fiction

Most financial experts agree that earning good credit is very important to your financial success. Dave Ramsey is not most financial experts.

In an Instagram post last year, Ramsey said, “the credit score is NOT a measure of winning financially. It is 100% based on debt. The credit (or FICO) score is simply an “I love debt” rating. No part of the credit score calculation even hints at how much wealth you have.”

Ramsey also believes you can live without a credit score and should not bother trying to earn a good one at all, since earning good credit requires you to borrow. 

So, is Ramsey right? Should you listen to him, stop caring about your credit score, and avoid using credit cards or taking on any other kind of debt — even if doing so means that you aren’t going to have a good credit score or perhaps even any credit score at all?

Here are the facts about Ramsey’s take on credit

Here is the reality about Dave Ramsey’s opinion on credit scores. It is not good advice, and there are a lot of reasons why you should not listen to it.

First and foremost, a credit score is absolutely necessary in many aspects of your life, even if you do not want to borrow money or be a debtor. Your credit report will likely be checked by:

• Utility companies
• Cell phone companies
• Landlords
• Insurance companies
• Potential employers

If you do not have good credit, you may have to make larger deposits on your utilities. You may have trouble qualifying for a monthly cell phone or getting a landlord to let you rent an apartment. You will almost certainly have to pay a higher price for auto insurance, and potential employers may have questions about the fact that you don’t have a credit history.

Of course, you can overcome some of these issues by doing things like making larger down payments. But why make life harder for yourself when you don’t have to? Good credit shows not just lenders but everyone who checks your credit that you are a responsible person that they want to do business with. It is a quick, simple way to convey that message, and you seriously handicap yourself if you don’t try to earn good credit when you have the potential to do so. 

You don’t need to be drowning in debt to earn a good credit score

Ramsey also doesn’t like credit scores because he says that they reward you for having more debt. But that’s not necessarily the case. You can earn great credit by getting a credit card, charging things on it, and paying it off each month.

You can look for an awesome cash back card if you want to score free money and take advantage of other perks like extended warranties. If you keep your credit usage below 30% of your credit limit and pay your bills on time each month, this card alone can help you earn a great credit score. As a bonus, you’ll also get money back for spending you were going to do anyway. 

If you can’t trust yourself to use cards wisely — which is one of Ramsey’s concerns and one big reason he doesn’t want you to care about a credit score — the good news is, you can also choose to set up a system where you don’t have to. You can get a card, link it to a streaming service so you have one flat recurring charge each month, and set up autopay on the account. Then, you can lock up the card somewhere where you can’t access it. This recurring charge alone can help you build credit with no risk of overspending.

There is really no reason to listen to Ramsey on the issue of credit scores. Start working on earning a good score today by finding the right card to meet your needs, and you’ll open up many financial doors for yourself for the future.

The post Dave Ramsey’s Take on Credit Scores: Separating Fact from Fiction appeared first on 24/7 Wall St..