Earl Carruthers of Graceful Credit Solutions on Dave Ramsey’s Credit Concepts
Dave Ramsey is a fellow brother in Christ and I adhere to his financial teachings over 90% of the time. I know I’m not in a position to judge a man’s heart but I believe Dave is sincere towards his mission to serve others and lead them to live a debt free life, however, I beg to disagree with Dave’s theory on the unimportance of a credit worthiness.
I cannot emphasize enough the value of having an above average credit score, most especially when applying for a mortgage, auto loan, working capital or even employment.
With all humility and due respect to Dave, I have laid out below my point-by-point responses to his past credit answers to questions during his radio show:
Q: Does everyone have a credit score?
A: Dave: The FICO score measures how much debt you currently have and how well you are paying it off. So if someone has no debt, there FICO score is “0″. A person could have millions in the bank and no debt at all, but have a FICO score of “0″. I guess that’s why my FICO score is “0″
A: Earl: Umm, sorry Dave, but I just couldn’t get myself to agree. Just because you currently do not owe any debt does NOT mean you have a credit score of 0.
Credit History goes as far back as 7, 10, and even 15 years. Your credit history is what makes your score. Negative history such as collections could even generate a score.
There are five major determinants of a FICO score:
1. Payment History = 35%
2. Debt-to-Credit Ratio = 30%
3. Aged History = 15%
4. New Credit = 10%
5. New Credit Mix = 10%
A credit score ranges from 300 to 850 and categorized as follows:
Poor: 620 and below
Excellent: 720 and above
I have never seen a 0 FICO score but have seen N/A which means none of the 5 major credit determinants generated a score or simply had NO credit history at all.
Q:Can I get a mortgage with no credit score?
A: Dave: Since you have not purchased anything on credit, your Beacon Score is probably close to zero, and they will not give you a mortgage with that kind of score. You need to find a lender who will look at more than just a stupid score to determine if you should have a mortgage. This is called manual underwriting.
A: Earl: Obtaining a mortgage without a credit score is virtually impossible. Yes you can opt to just save your money and purchase in straight cash like Dave recommends, but I cannot force myself to agree and tell you the same.
I use my credit file as leverage to obtain larger assets (shoes or spinners are NOT assets). I make sure that these are still within my means and I could afford to pay them off as soon as possible, without stressing my professional life too much. This I advise you to do the same.
Q: Hard time finding work with no credit score
A: Dave: The thing that can drive your personal credit score down is borrowing and not repaying; that’s called bad credit. If that drives your FICO score down, then it’s a legitimate thing. But not having a credit report score and not being hired by someone because of that doesn’t dry up your job prospects. And as far as the Boy Scouts, they might rule you out based on bad credit, but not no credit. I agree that a low credit score that causes higher insurance rates is stupid, but there’s not much I can do about that.
A: Earl: The importance of proper credit cannot be overstated. What I mean by proper credit is not to utilize it as a tool to get into debt, but as preparation to build a solid credit resume.
To put it simply but clearly – When your credit report is properly built and well-maintained, you get abundant benefits.
Not preparing a strong credit report will come back to haunt you.
Let’s not go far left and worship the FICO score or far right and crucify it.
Remember: A proper credit report compliments a well-balanced financial diet.
For more great credit tips and news tune in to The Graceful Credit Show live every Sunday at 3:00pm EST on WCHB News Talk AM 1200.
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