How important is a good credit score?

[Eagle]

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?

@ April showers
The reason Dave says a good credit score is not important is because he teaches people not to have credit cards. Why? Because as Gailete stated most people do not act responsibly with credit cards. Dave Ramsey assumes people will be irresponsible with credit as that does seem to be the trend. So he cuts out the temptation. Literally, Dave recommends to cut up all your credit cards.

Most people do not pay off the credit cards every month. And they look at credit in the wrong way. As an example I have several co-workers who have credit cards “just for an emergency.” Think about it. So if an emergency happens they don’t have cash in the bank to pay for it. Instead they put the “emergency” on a card charging 15-30% interest.

A co-workers laptop died and so they had an emergency. They put the computer on the credit card and have paid nearly twice what the laptop was sold for originally.

If you don’t have any credit you are seen as a bigger risk to companies or potential lenders. See my previous post on how to increase your score.

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!

[Eagle]

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.

It is true that you will have a good credit score by doing the normal {good} routine things that people in our society should do.

That said, by eliminating credit cards from the equation Dave is basically telling his audience that they are too dumb or irresponsible to handle credit. That is not the case with everyone.

[eric448503]

Having worked on the front lines in a car dealership, the devils work, bad credit scores were getting up to 29.99% and good credit was getting 0%. Pretty easy math there.

[Gailete]

Dave is basically telling his audience that they are too dumb or irresponsible to handle credit

I don't think Dave is telling anyone that they are dumb as he was in the same fix, if not worse, than many people that seek his help. He is coming from the position of 'been there, done that, got the T-shirt'. It isn't that people are dumb, but most don't use their credit cards appropriately which is a bad thing for them and our nation.

[paystub]

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.

@ lorraineb , I agree

[juvy]

When you have a good credit score, there will be a great effect on your life now and in your future. Especially if you're going to apply for loans or start up a business.

[Gailete]

Consider this: if you’re buying a $300,000 house with a 30 year fixed mortgage, and you have bad credit, then you could end up paying more than $90,000 more for that house over the life of the loan than if you had good credit.

That is assuming that anyone would give you such a large loan when you have bad credit. It used to be bank managers/loan officers used to be very strict when giving out loans and would take into account your salary, how much you had for a down payments, and your credit score. Then they got very loose and creative in giving loans to people that couldn't possibly afford them which is why so many families found themselves in such trouble when the housing bubble burst.

[Eagle]

I don't think Dave is telling anyone that they are dumb as he was in the same fix, if not worse, than many people that seek his help. He is coming from the position of 'been there, done that, got the T-shirt'. It isn't that people are dumb, but most don't use their credit cards appropriately which is a bad thing for them and our nation.

Actually, I do stick with my statement that Dave thinks people are too irresponsible (charging a $2000 TV on a credit card they can't pay off at the end of the month) or dumb (in the sense they can't practice delayed gratification) to have credit cards.

From this source on Dave Ramsey’s site:

Myth: Aren't there positive uses of a credit card? Like rebates and airline miles?
Truth: Responsible use of a credit card does not exist. Credit card debt is a major problem in America.

There is no positive side to credit card use. You will spend more if you use credit cards. Even by paying the bills on time, you are not beating the system! But most families don't pay on time. The average family today carries $8,000 in credit card debt according to the American Bankers' Association.

In case you missed it Dave says "Responsible use of a credit card does not exist." and "There is no positive side to credit card use."

That said I do agree irresponsible credit card use is bad for both the individual and the nation (assuming you mean the U.S.).

[Eagle]

Well good credit score is not only important from housing loan part but important for foundation of small business too.

It’s is exceedingly difficult to get a mortgage without a credit score. If you are living with your parents, have yet to establish credit, don’t have a steady job, don’t have a decent sized (think 20% or more) down payment, have few bills in your name it will likely be very difficult to approved for a mortgage.

And even then if you do qualify for a mortgage you’d probably have to get a FHA loan which is primarily for first-time and lower income buyers. Plan on paying an upfront mortgage insurance premium of up to 1.75% of your loan. (UFMIP) That’s on top of the standard mortgage insurance premiums.

You can put as little as 3-5% down with a FHA loan. There’s a lot more paperwork involved and plan on it taking a lot longer to get approved. You also have to live in the home and you can’t be purchasing an investment property. Also a distressed property will not likely be approved until basic repairs are made. So forget about buying a foreclosed home.

Most non-FHA lenders will expect a standard 20% down payment from a buyer with no credit. They will expect to see 12-24 months of history of payments on bills, etc. They will also expect stable job history.

[Gailete]

Being irresponsible does not equate with being dumb. Dumb has to do with either intelligence levels or the old fashioned word for not being able to talk.

Even Albert Einstein could be irresponsible. That has nothing to do with intelligence. It falls into the common sense, intuition, self-discipline areas.

[ashleyjohn]

While you are applying for loan, the first thing agents ask is about your credit score and if you have a good score, you can save thousands of dollars. Though, the case is different at credit union, when i applied for loan with Greater Central Texas Federal Credit Union, they didn't focus much on my credit score. I think it's different with every bank and credit union.

[johnt78]

When you use credit, you are borrowing money that you promise to pay back within a specified period of time. A credit score is a statistical method to determine the likelihood of an individual paying back the money he or she has borrowed.