Sunday, March 23, 2008

Why I'm not that worried about my FICO score

As any reader of personal finance blogs knows, the three major credit bureaus collect information on your payment history, utilization ration (credit used to credit available), types of credit in use, and length of credit history and use this information to assign a numerical score. These FICO scores are used by financial institutions to determine your creditworthiness, by insurers to help assess how likely you are file claims, and by some employers seeking to weed out chronically irresponsible applicants, among others. Although the exact formulas used to calculate these scores are proprietary, there is a lot of information available online on how to maximize your FICO scores. For some, it becomes almost a game.

I'm not playing. At this point in my life, I don't give a flying Wallenda what my credit score is. I'm not ready to buy a house, don't need to finance a car, and don't want another credit card. So why worry?

This doesn't mean that I'm planning to be stupid about credit. I'll still check my free credit reports to make sure there aren't any fraudulent accounts. I'll pay my bills on time because that's what responsible adults try to do. Running up huge debts isn't in my plans either; I'll continue to use a credit card as a convenience and pay the bill in full each month.

However, there plenty of other things that affect credit scores that just aren't worth devoting time and effort to now. My credit history is short because I got my one and only credit card less than two years ago, but that will rectify itself over time. I don't have a desirable mix of credit types since I don't have any student loans, a mortgage, a car loan, or other installment loans, but I'm certainly not going to rush out to take on debts to improve my perceived creditworthiness. My utilization ratio isn't as great as it has been because I used my card to pay for the very expensive Praxis tests, haven't paid that bill yet, and have a low credit limit. If I were trying to get a mortgage, I'd probably be paying off my card once a week instead of once a month to try to keep my utilization ratio as low as possible, but for someone in my shoes, a few points difference in my FICO score isn't likely to have much impact on my life.


Anonymous said...

I agree--I'm not going to go out of my way to increase my score, though I do think most responsible people in college should at least have a card to start out their history so by the time they do need a mortgage, they will have something

I also don't mind requesting the CC company to up my limit every so often.

A said...

With my wonderful student loan debt, I have zero desire to look at mine.

I'm in the same boat, I have no need for it at the current moment and as long as I don't screw up, it'll be good to go by the time I've decided to settle down. If that time ever comes...

Jim said...

I don't see what or why you are worried about your credit score? If you have no credit that is much different compared to bad credit. A mortgage can be calculated using manual underwriting, where they don't look at your payments from your credit report, they look at what you pay with the money you make. If all you have to pay is the mortgage, taxes, insurance, utilities, and not a single credit card or loan, it would be stupid for a bank to pass you up as long as the payment is relative (~25% per month) for your income. I don't like to think about my (or my wife's) student loans right now because paying off credit card debt is a top priority.