ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Do Not Focus on that FICO score. Do Not go into Debt, it is a Trap!

Updated on August 12, 2012
Don't get baited!
Don't get baited! | Source

Do Not Focus on that FICO score. Do Not go into Debt, it is a Trap!

Today in mainstream America, the FICO score is a commonly recognized brand name. Hundreds of millions of dollars have been spent on marking, and PR. No matter where one looks these days there is someone suggesting theneed to guard one’s credit score, build the credit, monitor it, fix it, and so on. There seems to be so many “experts” who agree that a “superior” credit score is an indicator of smart money management, winning at the money game. It is as if a high credit rating makesone an exclusive member of some kind with a right to certain perks. That kind of thinking could not be further from the truth. A true measure of wealth, being smart with money, or winning financially is a person’s net worth. While becoming wealthy it is critically important to ignore common “free” advice given freely by poor and broke people. One of the worst pieces of advice that I got was to build up my FICO credit score.

What goes into a FICO score? In a statement before a Congressional Committee Tom Quinn, who is the Vice President of Scores FICO, testified that “the data used to calculate the FICO score can be grouped into five primary categories as outlined below. The accompanying percentages are meant to give an indication of how important each of the categories is in determining a [FICO] score (Quinn, 2010).

--Payment history (35%)

-- Amounts owed (30%)

--Length of credit history (15%)

--Pursuit of new credit (10%)

--Mix of credit (10%)”

Notice that the FICO score is based only on debt? That means if one’s income tomorrow will double because of a promotion, the score will not be affected, yet this score is used to show credit worthiness. Financial counselor and author Dave Ramsey calls the FICO score an “I Love Debt Score” because the only way to have a score is to have debt and stay in debt. Plenty of controversy surrounds the issue; however the marketing departments of the credit corporations have done a remarkable job of brainwashing their consumers into thinking that a debt score is necessary to survive in this world. Not many people are immune to such marketing even many college broke finance professors have taken the bait and preach the message of indebtedness.

When I was much younger and was just starting out, I also was duped and became obsessed with building my FICO. As soon as I could get a credit card, I got one. I had a job and started spending and paying off the card balance every month. I was ecstatic when I got a card that when logged in online to my account there was a credit score meter that told me what my score was. It would slowly grow over the days, weeks, and months. Occasionally,it would drop a point or two so I became hooked to this little game of growing my score. I would purchase something, feel good about it for a couple of hours and sometimes days, and what made it feel good was that my score went up. I felt like I was making progress and was in control of my future. Then in a few weeks I would pay off the credit card as soon I got paid. What I did not care to notice was that my habit of spending was increasing and my habit of saving was going away fast, and every time it was getting harder and harder to pay off the debt. The price of an item was becoming less relevant. This is not unusual, in fact, “studies find that when you use a credit card, you buy more stuff and you're willing to pay a higher price for it. McDonald's began accepting credit and debit in 2004, diners who paid with plastic spent $7 a visit on average vs. $4.50 when they paid in cash. A 2003 survey of supermarket receipts found that credit-card shoppers rang up 30% bigger bills and carted out twice as much in nonessentials as cash buyers did. In an experiment that pitted cash and credit-card bidders against each other in an auction for Celtics tickets, Drazen Prelec and Duncan Simester of MIT's Sloan School of Management found that the credit-card payers spent twice as much as those who used cash” (Rosato, 2008).

The more I would let the need for instant gratification take over my rational thought, the more I would tell myself I deserved something long before I truly did. Then one month I could not pay off the whole balance. I paid some interest that month but what was worse was that a habit had formed, a very hard-to-break habit. My score grew very high, but my savings were gone. At about that time I decided I needed a newer car, a totally emotional decision that was backed up by an attempt to be logical. Many years later in sales training,I would learn that people usually buy emotionally and try to rationalize it with logic. A lifestyle of being in debt and trying to build a credit score up for the day I wanted to buy a house was in full throttle, and I found that I had no down payment for a car. With a very good score I got approved for a loan to go into more debt for a car that I could not afford. To clarify, having read books written by wealthy people, and meeting them, it became clear to me that when wealthy people say they can afford it that means that they can pay cash up front. Poor people say they can afford it when they think they can possibly make the payments.

Years later, I wish I got some different advice on how to win financially. I was not dumb, I just did stupid things with enthusiasm but because of some key formulas in my mind’s computer were instead viruses, figuratively speaking, planted by intense marketing, reinforced by people that were in a position of authority and also infected with the same bad advice. Being a lot more mature now and being actually an insider in the financial world, I know that one of the worst pieces of advice that I got was to build up my credit score.

References

Quinn, T. (2010, March). Credit Scores and Consumers. FDCH Congressional Testimony.

Rosato, D. (2008, July). Life Without Plastic. Money, 37(7), 90-95.

Great YouTube clip to watch...

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)