Last year on a podcast, I debated the pros and cons of the FICO score. If you do not know, the FICO score is the most commonly accepted way for lenders to determine one’s credit worthiness. The difference between having a great score and a good score potentially impacts your ability to get the best interest rate. Because I teach people to pay off their debt and pay for things with cash I am not a fan of the FICO score at all. But what if you are done with borrowing money? Do you still need a good FICO score?
If you are not borrowing money anymore why should you care about your FICO? You are not going to take out any more loans. Yes, that makes sense, but sadly there are other areas where not having a good FICO score could impact you. The insurance industry, for example, sometimes uses your FICO score to determine your premiums. So having a lower score, even if it is because you have not borrowed any money recently, might actually increase your rates! A lot of times people justify having a high FICO score for employment reasons. But if you were an employer would you rather hire someone with a lot of debt but a high FICO score or someone with no debt and money in the bank but a low score?
If you have no debt, including your mortgage, and the only option to keep a high FICO score is to take out a car loan or open a credit card, I am passing. Having a slightly higher premium on my car insurance is a lot better than having to worry about paying off a credit card each month. For my family, all we have is our mortgage. We have no other payments of any kind, no credit cards open, and by paying our mortgage on time each month our FICO score is good. Yes, good but not great, but we are not going to play games to get our FICO score higher. So for us, we aren’t planning on borrowing money ever again so we have no need for the FICO score. If we did decide to borrow more money for a new mortgage we would consider using eCredable as an alternative instead of relying on our FICO score.
But what about you? If you have decided to never borrow again, do you care about what your FICO score is? Please share your thoughts below.