I’m not sure what I did to deserve all these wonderful PF bloggers knocking down my door to guest post for me… so just want to say a big “THANKS!”. Financial Uproar is one of my favourite blogs because he tells it like it is and he’s laugh-out-loud funny (especially when he does his Saturday Link Dumps). He’s probably the funniest PF blogger there is, I’d say. So I am very appreciative that he’s helper a sister out when she’s stressing about school. Thanks Nelson!
Hey, I don’t mean to be a downer, but, what do I care? This isn’t even my blog.
Did you know that, without a decent credit score, your life is basically over? Yep, it’s true. If you need confirmation, just check around the personal finance blog-o-net. I’ll save you the time, since there are approximately 65,342 (author’s estimate) posts written on the subject. So yeah, I kind of think having a high credit score is very, very important.
Of course it is. People with low credit scores will have difficulty getting any sort of credit. They can forget about a mortgage or any sort of unsecured line of credit. Even getting a credit card with a limit higher than $500 is difficult without a decent FICO score. And, to top it off, even potential employers will have a look at your credit report. Your crappy credit score could even make you lose out on that dream job.
But fear not, for all is not lost! Did you know that there are websites that you can check your score for free, every few months or so? What’s that? You do, because it’s been mentioned in each of those 65,000 articles? Well, never mind then.
I’m going to go a different direction with this guest post. I’m going to list the reasons why you shouldn’t sweat about your credit score. I’m all about freeing up time for things that are important- like hitting on Y&T even though she clearly has a boyfriend. He probably wants to fight me. I can’t say I blame him. (Editor’s Note: LOL but we’re internet boyfriend and girl friend so it doesn’t count of course. Doesn’t everyone have an internet girlfriend/boyfriend? KIDDING)
A High Score Isn’t That Hard
Let me tell you all a story about my credit report.
Back in 2008, I decided I was going to go ahead and buy a house. In the process of applying for the mortgage, I got to see a copy of my credit report. My score was 802. (Editor’s Note: Dang boy!! That’s high! I think mine was 780 or something though I did have lots of credit cards but paid them all off regularly)
How did my score get so high? Did I use the credit building tricks I’ve read so much about? Nope. In fact, I did some things I wasn’t supposed to do. I applied for a credit card just to get the free Blue Jays t-shirt, promptly cancelling that card a few months later when the bank asked for their annual fee (which I never did pay). The credit card was never used. That’s not so good for your credit score.
During that time, I only used one credit card. It’s the same credit card I’ve had since I was a much younger man. It’s the only card in my wallet, and it gets paid off in full. Every. Single. Month.
I have also never had a car loan or any other installment loan. Credit gurus commonly tell people to get a loan of this type and at least make some progress on it, which will increase your FICO score.
The point of all this? By being smart financially and by using credit responsibly, I have a great credit score. And the best part is, I didn’t even try. You can accomplish the same thing, just by not being a dirtbag.
The Consequences Aren’t That Bad
What are the three most common consequences people say about not having a card?
1. You’ll pay more for debt. (assuming you can even get it)
2. You’ll have difficulty renting a house or getting insurance.
3. You’ll lose out on your dream job.
Well, I’ve got good news for some of you. You can quite easily exist without a great credit score.
Think about all the people you know who have too much debt. Some of them got into trouble by loading up on so called “good debt”, financing things like their education or a house. Most of them though, have some sort of ill-advised consumer debt. There are millions of people in North America who would have easier lives if they never had any access to credit.
Now that’s not saying credit is bad. credit isn’t necessarily good or bad, it’s what you do with it. All sorts of people exist without using credit whatsoever. All sorts of people would love to have never seen credit cards. These people might even go as far as cutting up those cards once they pay them off. Credit may seem like a necessity, but it isn’t.
As for the house, insurance and job arguments, realize one thing. Many landlords and companies will check credit reports. Many more won’t bother. If you can avoid renting a house from a large scale landlord, you can probably avoid a credit check. It’s the same thing if you go work for a small, family owned company. All sorts of companies will screen potential employees with a criminal records check before they ever do a credit check.
Although credit makes it easier to live in today’s day and age, it’s not vital. Food, air and shelter are true necessities. Credit is not. I’m not saying you should intentionally screw up your credit. I am saying living without it isn’t the end of the world.
Identity Theft Is Really Rare
In 2009, the RCMP received identity theft complaints from 11,095 Canadians. Wow, that’s the population of a small city! That’s a lot of identity theft, which is why everyone should be checking their credit reports regularly. Identity theft is a real threat!
Except it really isn’t.
During that same year, RCMP recorded 443,000 violent crimes across Canada. That means that the average citizen is 40 times more likely to be beaten up in a dark alley than having their identity compromised. Heck, you’re 3 times more likely to get robbed than having your identity stolen. (Especially in Winnipeg. Click the link if you don’t believe me. Oh yeah, Winnipeg sucks.)
What steps do you take to avoid being the victim of a violent crime? Like most people, you use common sense. You stay in well lit areas at night. You don’t spend a lot of time talking to drug dealers. And, just maybe, you should take the same approach with your credit score.
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It’s really difficult to give advice on how much house someone can afford without knowing their specific situation. As a general rule, the government and most big banks will say that your house-related costs (your mortgage, utilities, maintenance etc) should never exceed 35% of your gross income, and many would argue that number is way too high. To my way of thinking, the percentage of your gross income that you spend on your home is almost irrelevant in terms of setting a “rule of thumb” because each person is so different. The real number that we can draw conclusions from with real consistency is your debt-to-income ratio. If you have 35% of your gross income tied up in housing costs, but earn a high income and have no credit card debt, lines of credit, or student loans, then you will probably be just fine. To show the opposite side of the equation, if you gross 4K a month, and subsequently take home about 3K, while paying out a $500 car loan, $800 student loan, and have a revolving balance on your credit card(s) of 30K, then you probably shouldn’t take out a mortgage at all, never mind something that will eat up another 35% of your income!
