How important is a good credit score?

[April showers]

I'm wondering how important a good credit score is? Dave Ramsey says that you don't need to worry about a good credit score because you shouldn't use any credit, but I thought that these scores were used for other things as well. Is this score not important, or is it something that I need to be concerned about?

[humandraydel]

A good credit score will save you tens of thousands of dollars on a mortgage. So, yes a good credit score is important, especially if you buy a house.

[mholl95]

Unless you have a rich uncle or the financial means to pay for everything in cash, including a home, you need credit a credit history to borrow money.

So a credit history and a FICO credit score are very important. Keep in mind that your credit scores could also sometimes be accessed by current or potential employers, landlords, and others to get a sense of who you are and your reliability. (Note: Usually, you're granting permission for other parties to check your score/file when you complete their application.)

cheers
michael

[HappySaver]

In addition to landlords and employers checking your scores, insurance companies may increase your rates with a lower credit score. It's not just about borrowing money.

[lorraineb]

As mention above, a good credit score can save you tens of thousands of dollars over a low score over the life of a home loan, not to mention all the other areas. I don't think you need to obsess about your score, but you do need to take the basic steps to keep it in the good credit category.

[bjl584]

Dave Ramsey is wrong. This is one area that I disagree with him on. If you are in his position, then he is correct. But, he is a multi-millionaire that pays cash for everything. For the average person, it's important to have a good credit score. Not just for loans, but often insurers will look at your score to determine your rates. And, potential employers may look at your score before deciding to hire you.

I wouldn't obsess over your credit score, but having a good score is non the less important.

[Eagle]

I'm wondering how important a good credit score is? Dave Ramsey says that you don't need to worry about a good credit score because you shouldn't use any credit, but I thought that these scores were used for other things as well. Is this score not important, or is it something that I need to be concerned about?

Dave Ramsey is a multi-millionaire who pays for things in cash. He doesn't need credit. A good credit score will help you secure better interest rates in loans, help you avoid having to pay extra deposits on setting up internet/phone services, insurance quotes, and potential employers.

As I understand it credit scores range from 350 to 850. Here's a breakdown...

Excellent (750+)
Good (700 - 749)
Fair (650 - 699)
Poor (600 - 649)
Bad (below 599)

As of October 2012, the average FICO score is 689 according to MyFICO.com.

As I understand it the bureaus determine a credit score based on five major factors: 1) previous credit performance (35%), 2) current level of indebtedness (30%), 3) time credit has been in use (15%), 4) types of credit available (15%), and 5) pursuit of new credit (5%).

[Eagle]

The 3 credit bureaus are Equifax, Experian, and TransUnion.

•Equifax: http://www.equifax.com/
•Experian: http://www.experian.com/
•Trans Union: http://www.transunion.com/

How do you get good credit? These are some things I've learned...

*Make loan payments on time.
*Never ignore overdue bills. Pay them as quickly as possible if you miss a bill. Consider setting up automatic payments.
*Know your credit score and monitor your credit. You can get a free credit report once a year.
*Keep your outstanding debt balances as low as you can. Continually extending your credit close to your limit is viewed poorly.
*Limit the number of applications for credit. Every time you credit is pulled it's considered a "hit".
*Credit is not built overnight. It's better to provide creditors with a longer historical time frame to review: a longer history of good credit is favored over a shorter period of good history.
*Pay your credit cards off each month to a $0 balance.

Hope this helps!

[btctony]

When Dave Ramsey says that you don't need a good credit score, he isn't saying that it's alright to have a low score. He is saying that a 0 credit score is what you should be after, which is what happens when you don't use any type of credit for several years and all of your history has fallen off of your reports. No one will lend you money for a home with a 500 credit score, but you can obtain a mortgage with a 0 credit score if it is manually underwritten. Zero doesn't equal bad credit, it equals no credit history. 500 is a larger number than zero, but it represents the fact that you have a bad credit history.

Most people aren't going to wait for their score to zero out, when they are wanting to purchase a home, unless they have been following that plan for years.

Dave Ramsey's advice on credit is excellent for people who have gotten themselves in a mess with credit cards or just overspending in general, but I don't agree with the advice when it is being given to someone who has a long history of being responsible with credit.

[lorraineb]

When Dave Ramsey says that you don't need a good credit score, he isn't saying that it's alright to have a low score. He is saying that a 0 credit score is what you should be after, which is what happens when you don't use any type of credit for several years and all of your history has fallen off of your reports.

There is no such thing as a 0 credit score. Having no credit score means you're an unknown quantity to the business checking your score, and as an unknown quantity, you are assumed to be a bad credit risk.

[April showers]

If a credit good score is important as most people here seem to be saying, then why does Dave say that it's not? I understand why it's not for him, but why does he tell people like me that it's not important who don't have millions of dollars?

[Gailete]

I think with Dave's reasoning you shouldn't be making decisions about finances based on what it will do to your credit score. You will have a good credit score by doing the normal routine things that people in our society should do. You get bad scores by doing what the majority do, such as paying cards late, not paying the minimum or even the whole amount, late utility bills, late mortgages, skipping out without paying the landlord.

I would say having way too much open credit on the cards, but I have a huge amount available to us and just got my credit score with my Discover card. Needless to say it isn't affecting my credit score in the least.

The most important thing in your finances is to run your financial life well and automatically your credit score will start to rise to the top like cream.

[snidersusan21]

It is really important especially when you applying loan. If you have excellent credit score it's easy for you to approve by the lender.

[youshallliveinoverflow]

A good credit score is critical. Many employers access credit reports before extending job offers. Even if you do not use credit, you should have a good score.

[Gailete]

A good credit score is critical. Many employers access credit reports before extending job offers

It very much depends on where you are in your life just how important a good credit score is, for some it is imparative, for others not so much. For someone that is still in the job market, wanting to buy a home and cars, etc. very important. To someone established in a house with a paid off or nearly paid off mortgage, retired or disabled so no job hunting on the horizon, and no big loans anticipated, your credit score isn't nearly as important since no one should be checking it.

Still as long as you run your finacial life properly, on its own your credit score whould be climbing on it's own. You shouldn't ever have to do anything to 'help' your credit score since your credit score is a response to your finances not the other way around. Do what you need to for your finances and the credit score takes care of itself.