When Credit Score Mania Reaches Absurd Levels

As a financial blog owner and writer, I?m drawn to articles on credit. I find any that smack of credit score mania to be especially interesting. Yesterday, on Yahoo Finance I found an article entitled, How Not Driving Can Hurt Millennials’ Credit Scores. Driving and credit scores? What?s the connection?

To credit score junkies, everything is ultimately connected to credit scores, but more on that in a bit.

The ?article? turns out to be a post with editorial-looking content that is actually a cleverly hidden pitch for yet another of those ?free? credit score monitoring companies, Credit.com. But the information it contained was more serious in nature, certainly enough to look newsworthy. And certainly enough to make the Yahoo front page yesterday.

For example, the article points out that?

  • (Millennials) may be missing out on an opportunity to help build strong credit scores (as a result of not having car loans), and
  • 16% of Millennials don?t have a single credit card, and that can be a mistake when it comes to building credit.

When Credit Score Mania Reaches Absurd Levels
When Credit Score Mania Reaches Absurd Levels
The article acknowledges that the Millennial?s are facing tough times and hard choices, but concludes that they are nonetheless ?missing opportunities? to improve their credit scores!

Really? Is that what it takes to move forward in life??? Should you take on credit that you can’t afford so you will have a better credit score? Is this a critical survival skill that people need to acquire early in life?

This makes complete sense to credit score junkies

I?ve seen them many times, and you probably have too, the endless legions of experts, articles, and programs aimed at showing you how to increase your credit scores. These ?experts? ? and their faithful flock of devotees ? are what I refer to as Credit Score Junkies. They?re of the simplistic mindset that everything will go better in life if you have a higher credit score.

This has brought to life a cottage industry, and it?s purpose isn?t as noble as it seems at first glance.

Though it can often seem as though people are giving out information for free, that?s never what is really happening. Programs are developed and articles are written for the primary purpose of selling something. Obviously, anyone who works in the credit enhancing industry will benefit from steering people into programs that will help them increase their credit scores. But it gets worse?

The World Wide Web is driven by advertising. That is where the money is earned that supports the Internet, and certainly blogs (including OutOfYourRut!). One of the most lucrative ad sources are those related to credit, and especially to credit cards. Nearly any article written on anything having to do with credit or credit cards has advertising income potential. For that reason, credit related posts are popular on the web, and it?s why you see the same themes repeated again and again across many different sites.

In an ironic twist, even if an article is warning you of the dangers of having too much credit card debt, it represents an opportunity to earn advertising revenue from the very businesses that are behind people having too much credit card debt: the credit card companies.

It?s no wonder then that so many websites also carry articles teaching you how to increase your credit scores, or ?educating you? on the virtue doing so. If it?s about credit, it?s a money maker.

The articles on credit scores can be particularly enticing. We all like to play the numbers game ? we want to make more money, have more money, lose more weight ? and have a higher credit score. Articles on the topic take us exactly what we want to go.

There are more important things in life than a pretty looking credit score

My point is not to tell you that credit scores are completely meaningless. Your credit scores should be in an acceptable range, but simply as a result of paying your bills on time and properly managing your levels of debt. The notion that you can and should somehow juice your scores higher by using certain tactics and strategies is mostly a waste of time that could be better spent on more profitable pursuits.

I know we see all of the articles and certain talking heads discussing the ?critical importance? of having a credit score in the ?excellent? range, so that we are certain of loan approval and at the best possible rate.

But here?s my thinking: if your credit scores are lousy, it?s probably because your credit is bad. If so, you need to fix your credit and not worry about your credit scores. And if you?re trying to increase your credit score from 700 to 750 so that you can save a quarter-point on a mortgage, or 2% on a credit card then my guess is that you have entirely too much time on your hands!

I?m also going to stick my neck out here and say that at least some of the drive for higher credit scores is pure vanity. My best friend (or worst enemy) Bob has a credit score of 750, so my goal is to get mine up to at least 775.

If that?s the case, then not only do you have too much time on your hands, but you?re also entirely too competitive.

The basic objective with credit is to use as little of it as possible

Back in the 1990s and early 2000?s, when my life?s work was hawking mortgages, I noticed a consistent but curious pattern. People with excessive levels of debt often had outstanding credit scores. Many had figured out how to carry substantial amounts of debt while still maintaining stellar credit scores. Of course, they paid their bills on time, but they also maintained plenty of outstanding open credit lines, with carefully managed credit utilization ratios. It seemed to work.

Because of their high credit scores, their mortgage loans were almost always approved despite the fact that most of their incomes were going into making debt payments. We approved mortgages where 50%, 60%, and even 70% or more of the borrowers income went to debt payments (if income was even verified).

Is it any wonder that we experienced the Mortgage Meltdown at the tail end of that time?

Back in the days when we had a real economy, where people did real work, and transacted with real money (not credit), one of the most fundamental rules of debt was that you should have as little of it as possible. But today, with credit ? and credit score mania ? all that common sense thinking is gone.

Something is radically wrong with that arrangement.

Maybe the Millennials have it figured out after all – they?re ignoring Credit Score Mania!

Various surveys and statistics confirm that in fact Millennials are driving less than their predecessors. They are also less likely to move out on their own early in life, to get married, to have children, and to buy homes.

From my own vantage point, this is a perfectly valid response to living in a world with decreased economic opportunities.

If you are a young person, and you are avoiding buying a car (or at least one with a loan on it), taking on a mortgage, or having credit cards, then my hat is off to you. You pass the sanity test with flying colors!

Now all you have to do is resist the urge to give in to the society-wide calls for building better credit scores so that you can have more credit.

If you can build a worthwhile life without credit – and you certainly can – then you are already ahead of the generation that came before you.

( Photo by Match Financial )

6 Responses to When Credit Score Mania Reaches Absurd Levels

  1. Kevin, this post is fantastic. Transparent, sensible, funny, a little curmudgeonly…all of my favourite qualities. Well done.

    Also: I didn’t know we shared a mortgage hawking past. People so often miss the fact that people with great credit scores are the ones the credit scoring industry has judged to be most likely to make lenders lots and lots of money.

  2. Hi Sandi – Yes, the mortgage business is where I learned more about the inner workings (and contradictions) of the credit world than I ever cared to know. I like the fact that you noticed me being “curmudgeonly”. I find a lot of this credit worship to be a bit irritating. It’s a short hop from responsible credit use to credit problems. Personally, we should all be more circumspect with regard to credit and not treat it like an old friend. I saw more than a few people go from sterling credit to credit hell, mostly because they didn’t have a healthy respect for the game they were playing.

  3. For the last few years my husband and I were up to our eyeballs in late payments and our credit scores tumbled. We have spent the last two years consistently worried and working on improving our credit scores but it’s been difficult because neither one of us has gotten a worthy raise in 6 years!

    The point is; I believe my recent high blood pressure is a direct result of the stress of worrying about my credit score and overdue bills.

    I want to go back to the “old school method” of not paying for anything unless it’s in cash! A word to you youngsters out there; avoid debt like your life depends on it and you will be financially fine.

  4. Hi Tammi – Thanks for sharing your experience. I’ve seen enough of that to know that it’s a common occurence. People go along, borrowing money, building a pretty credit score, and it all goes down the drain when a job loss is followed by a long period of unemployment. The thing that people do on the way up (“building good credit”) makes the ride down so much more difficult.

    We really need to get back to cash on the barrel where ever possible and stop worrying about metrics like credit scores. It’s a distraction in my opinion. And I’m saying that after having worked in credit for so many years.

  5. At some point these Millenials may decide its time to move out of the parent’s basement and own their own home. When that happens their credit score will have a major impact on their ability to qualify for a mortgage, and the rate they pay.

    They can prepare for that day by exercising credit prudently, so the scoring algorithm has enough reliable data to make an accurate assessment of their ability to handle credit. Or they can come seeking a mortgage with a short history, a thin file, and force the score to correctly assign them a lower number.

    Run the numbers on any mortgage. A few points in extra interest can cost a bundle over the life of the loan. There is a link above (number 3) to an article spelling this out! Good scores are built years in advance of when they are needed.

  6. Hi Kevin – True enough, but if you’re young and struggling, the best thing you can do for your credit score is to stay out of debt. The notion that a young person – especially in this economy – should make a priority of building a great credit score is way overblown. Of course, it makes for credit-related writing fodder, and that’s why we see that message repeated so often. I see it as mainly background noise.

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