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Credit Scores are Stupid

June 27th, 2010 at 03:29 am

Why to people cling to their credit score like its the most valuable thing in the world? A credit score actually helps keep the bank in business. To keep a high credit score you need to borrow money, borrow it often and pay it back. What is the point? People need to stop worshiping their credit scores.

Lets look at what makes up a credit score.

35%- How you pay your bills

30%-Amount you owe and available credit

15%-Length of Credit History

10% Mix of Credit (credit cards, loans, ect)

10%-New credit applications

But what if I want to buy a house, Don't I need a good credit score? No you don't. Banks can actually give you a mortgage loan by doing what is called manual underwriting. This is where they actually look at you as a person (if you paid rent on time, job history, ect) And not just look at your Credit Score.

If you stop borrowing money your credit score is slowly going to go down, eventually it will be zero. But does that really matter? Not if you promise to never borrow money again. And yes its true that car insurance companies are using your credit score to determine your yearly premium. But I would rather pay a little more on my insurance than keep borrowing a bunch of money just to keep a worthless credit score high.

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