George Kamel - Why You’re Wrong About Your Credit Score

Episode Date: July 17, 2023

Today we will learn the truth about credit scores and why they aren’t a reliable measure of success.  Links: How to Pay Off Debt How I Bought A House With No Credit Score I love a good deal, when you sign up using this link, I’ll hook you up with a 14-day free trial and $15 off your first year of the premium version of EveryDollar.   Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

Listen, I know you live and breathe by your credit score, and I also know you use it as a weird flex on your dating profile, along with that picture of you holding a fish. Christopher, put the fish down. Bro, no one's impressed. It's just weird. I hate this fish. This is the worst fish I've ever seen.

Um, I... I hate your fish. Guys, it's time to start thinking about credit scores and fish tender in a whole new light, because let's face it, those things just aren't working for you. So today we're breaking down what you need to know about credit scores why they suck as a symbol for success. Right after you swipe right on that like and subscribe button.

And to all the Christopher's out there, here's a little pro tip. If you're going to share anything under dating profile, make it this video. All right, nothing says marriage material like family-friendly financial content. All right, hold on to your seats, kids, because I'm about to make a bold statement here. Hold on to your butts. Zoom in. Bring it in a little bit. You don't need a credit score.

Did I blow your mind yet? In fact, despite what basically everyone has told you, a credit score has nothing to do. with how well you handle your money. Now, while you process that curveball, let me debrief how we got there by looking at the checkered history of credit scores. Where did it come from? Where did it go?

Where did it come from? F-I-C-O. Now, some people may think that your credit score was originally etched on papyrus and allowed you to trade a herd of goats for a sack of oats. But you could not be more wrong. It actually began on the 1950s

with these two guys, Bill Fair and Earl Isaac, who founded the Fair Isaac Corporation, F-I-C-O. Super clever branding there. Oh, real original. At that time, there wasn't any inconsistency on who could or couldn't get credit at a store. I mean, maybe you look super nice and likely to pay me back. But you? Not so much.

Nothing for you. So Bill and Earl figured there needed to be something to help lenders determine credit worthiness. What a gross word. Worthy of credit? You're worth so much more than credit, Susan. You're worth more than Christopher. Henceforth, the credit score was born. Now, fast forward about 30 years, and this whole concept really took off. By 1989, the credit score was being used everywhere.

And what a great way to ruin an otherwise great year. naming the Simpsons were piloting the TV waves, wind beneath my wings was topping the charts, and I was born. It's all downheal from here. By 1991, the score was available from all three major U.S. credit reporting bureaus, Experian, Equifax, and TransUnion.

Now, let's break down how the credit score works. Lenders report the details of your transactions, both the good stuff and the bad, to one of the three credit bureaus. Now, these guys are basically the keepers of that permanent record you've been worried about since you got caught swiping an extra strawberry milk in the third grade.

Christopher. After that, a credit scoring company like FICO or Vantage score enters the picture and takes the bureau's data to create that magic number. That's a magic number. Then when you apply for any new debt in the future, the potential lender checks in with the bureaus and your credit score to decide whether or not they're going to approve you. And just like Gladiator, your fate hangs in the balance of this approval. Are you not entertained?

Some of Russell Crow's best work. I feel that strongly about it. Now, the exact mathematical algorithm for the credit score remains, much like our friend Bigfoot, a mystery. But we do know the scores generally range from 300 to 850, with 850 being considered a perfect score. But we do know what factors go into your credit score. 35% is your debt payment history. 30% is the amount of debt owed. 15% is the length of debt history, aka how long you've been in debt, 10% is how often you apply for new debt, and 10% is the old debt medley, or the mix of debt you currently have. Credit cards, auto loans, student

loans, installment loans, mortgages. Your credit score is then used to determine whether you're approved for the debt plus the rate and terms you're offered. On On top of that, your score can also impact job opportunities, insurance costs, and your ability to buy or rent cars and housing. And if your score is low, that will hurt you. Worst than Jordan hurt me when he didn't invite me to his laser tag party in the sixth grade. I don't need friends. They disappoint me.

Is anyone else noticing a major theme here with all this credit score stuff? It's all about debt. It's not about whether you're good with money or what your net worth is or where your income is. I mean, you could have a million dollars on a paid-for super yacht named Feeling Noddy. But it doesn't matter. Your credit score only cares about your relationship to debt. I mean, if this was 2009 and you were on Facebook, your relationship would be marked as, it's complicated.

So does your credit score actually matter? Well, if you're applying for a Coles card, sure. Getting a car loan on a 2020 Chevy Spark? Sure, you'll need a credit score for that. But that's because the only people who need a credit score are people who plan to take on more debt. And for me, that's not something I'm gonna do. Right up there with getting a belly button ring.

No matter how much you guys ask me, it's a boundary and I'm keeping it. End of story. What did you think I was going to say? I mean, what did you think I was going to say? You see, the goal here is to you to be debt-free. And debt-free people don't need a credit score because they aren't taking on more debt. They know that having a relationship with debt is like having a relationship with cocaine bear.

Okay, in the end, you're going to get got. That bear's going to get you. So you've got to wake up and see that having a good credit score means having debt, staying in debt, and continually paying your accounts perfectly without adding too much or paying too much off. Paid off your Coles card? Great. Your credit score just dropped 10 points. You paid off that Chevy Spark early? Yay! Your score just dropped 20 points. Does this not sound like a scam to you? I mean, it makes zero sense. Hold up. Wait a minute. Something ain't right. A good credit score just means you're crushing it with debt management, not money management.

There's a huge difference. So you can survive without a credit score and without debt. I mean, I've done it. And other than a perennial existential crisis, I'm doing great. Right, I've been able to buy a car with cash, rent a car, rent a camel, rent an apartment, stay at hotels, get great insurance rates, and even get a mortgage all without a credit score. And if you don't believe me, I made a whole video on how I got a mortgage without having a credit score. I'll drop a link to that. below. So don't believe the myths that you can't do this stuff without a credit score. I mean, truthfully, have you even tried? You didn't even try! Because I have, and I succeeded, and millions of other

people have too. And sure, the process looked different than if I had credit. Maybe I had to do some extra research, or put down an extra deposit or save up and pay cash for a reasonable used car. But all and all, it worked out fine, and I haven't looked back. And truthfully, I think it allowed me to build well faster, not slower. So how do this all happen? Well, when I decided I didn't want a relationship with debt, I needed to learn how to live without a credit score. Now, I'm not saying I wanted a low score. I'm just saying that a natural byproduct of not having debt is losing your precious credit score. Now, within six or so months of becoming debt-free, my credit score became indeterminable, a.k.a. I was credit invisible in the eyes of the Consumer Financial Protection Bureau,

just like how I was invisible to girls in high school. But the difference with this cloak of invisibility is that it won't affect your self-esteem into early adulthood. There's a perk. And while it was a lonely existence back then at Debtim High, I'm in good company these days, with millions of other people who are also Credit Invisible. In fact, in 2021, the CFP, reported that one in ten Americans are credit invisible. So basically, once you have zero debt to your name, that magical, indeterminable credit score will find you, just like love will find you, Christopher.

Just keep swiping. But again, I want to be perfectly clear here. I'm not saying you should have a low credit score. That's not going to help you. What you want is no credit score. Zip. Zero. Zilch. Nothing. Not a zip. Yeah.

So listen, when you decide to pay off her consumer debt and cut up the credit cards and close those accounts, you take back control of your money. And then it's easy to stop bowing down to your credit score because you don't need debt anymore. You can ditch debt. You can live life without a credit score. But it all starts with believing in your own ability to do it.

Just do it! So draw a line in the sand and decide you're done with debt forever. Start living on a budget and start paying for things with money you actually have with cash or a debit card. Then make a plan to pay off whatever current debt you have as fast as you can. Pretty soon, you'll be able to focus on building your net worth instead of a credit score. Which, by the way, is a much better scoreboard for how you're doing financially. I'll drop an article below that teaches you the method I purpose. to get out of debt once and for all.

But in the meantime, if you have a credit card or you think your credit score is important, I want to know why. Let me know in the comments, let's start a little friendly conversation and debate. And go ahead and share this with the Christophers in your life. Truthfully, they need this video more than you. Okay, maybe they'll end up replacing that photo of a fish

with them just, I don't know, being secure. That's an option. Thanks for watching. I'll see you guys next time.