Credit is everything! I wish I had a nickel for every time I heard that statement. I am not sure who said it maybe it was Napoleon Hill; the reality is money only has value because we think it does. If you didn't have gold in the bank you didn't have anything 200 years ago. Until our country made laws stripping the currency from the gold standard we only valued gold and a paper backed by the government well that took a 100 years to get used to.

So what am I talking about? Well there are a lot of people that do some really strange things in the name of building credit. So let me tell you how I found out about credit. I was born and raised in a rural part of the country. If you didn't have enough in your billfold to pay for something well you didn't buy anything. I remember I was about 14 when I saw a television commercial for a credit card and asked my mother about it. She replied that she wasn't sure what it was, but it couldn't be anything of real use to a person. I said "oh ok".

So fast forward a couple of years I am in Orlando, FL and I am going through an indoctrination class in the Navy. A lady from the Credit Union was telling us how important credit was, and how they could help us by opening a savings account and borrowing 500 dollars and putting it in the account. Then we would pay it of in 6 months and do it again 2 more times. She said this would establish a credit rating and we would need that. Well needless to say Sailors were signing up left and right. Well I didn't do it. I was frowned at and slightly ridiculed I even had my superiors talk to me and explain that I would need a credit rating. I replied "why would I need that". They said because you do. I said "why". Anyway as you can guess I had a very grueling career in the military.

So after a while people kept getting the loans and I kept saying no. Instead of paying money to a loan every month, I stopped my bond allotment. Early on I knew those things were not a good idea for me or our beloved country but they make you feel like you are doing yourself a favor by signing up and getting payroll allotment to buy them. Anyway I started putting that money and some more in my IRA and an Individual account. Well 2 years later we all transferred to a school in Idaho. Everyone was getting their first cash bonuses and they ran out to get cars. A lot of them couldn't get a car, you see they had good credit rating but they had this little thing called debt to income ratio going against them. I needed a car also, so I went to a government auction paid 2500 cash for a car that had 15000 miles on it and very little wear and tear. I put 270,000 miles on that bad boy before I got another.

Lesson one you can take your money and buy a car that will be worth nothing in a couple of years on credit and pay someone money the whole time you have it or you can just by a car. It seems like a small point but imagine the power of the money spent on a car payment invested in a mutual fund on a periodic basis.

So now I am almost twenty one and I tell my friends I am going to buy a house and they laugh at me. I say what is so funny. They were like how are you going to do that. I said you know those bonuses you bought TVs, stereos and cars with, well I still have my bonus and I am going to buy a duplex. I have done the math and I think I will make 200 dollars a month if I buy it, and rent it to a couple of you guys. They were like why would we rent from you. I said because I am giving you a bigger place for the same price you are paying for your studio and basement apartments. They were like ok. So I had my buddies sign leases before I wrote the offer. I bought a house with my money, rented half of it out and lived for free for the next 2 years. Now here is where I started getting some money. When you don't have to pay rent and you are getting a housing allowance which the government authorized for people who had a house in town, and no car payment, well you can guess what. I made out like gangbusters.

So what does this have to do with credit? Well I wrote an offer on the house and they said I needed a loan so I went to the bank told them how much I was going to pay for the house and how much I was going to put down. I had more than 20 percent but I only wanted to put down 5%. They said I would have to pay private mortgage insurance (PMI) I said ok (all this I had figured into my calculations). So did they say a word to me about my lack of credit? Not one. See when I filled the application out they asked my income which was my salary plus housing allowance. Two signed in hand leases for the other half, and an IRA account and a Brokerage account with assets that were almost equal to the purchase price of the house. Nope not one word was mentioned about having a credit rating. I wonder why.

Because the oldest law in economics applies CASH is KING. See only people who lack the means to pay for the things they want need a credit rating. See if you have means to pay you do not have to demonstrate a willingness to repay. Now a few of you are reeling, going who the hell has that kind of money. I will tell you who, people who don't have a credit rating before they own real estate. See credit is only important because people have been conditioned to never own anything and to give a very large portion of their lifetime earnings to creditors.

Don't do it and don't believe anyone that tells you that you need it. You don't need it, what you need is a good mutual fund account, and put the money you would spend on the loan in there and in 1/3 of the time it would take you to pay the loan, you will have the full purchase price. That is right 1/3 the time and you will have the full purchase price.

Now at this point, might choose to borrow the money anyway if the interest rate is low and your investments make more money. See this is good use of credit but if you don't have the purchase price in assets, you are not making a good credit decision. Well enough of my soapbox speeches just remember, cut the cards up and make sure your children know, to just say NO to credit.