I’ve said it before, and I will say it again: dear media, please quit obsessing with the credit score. Last week’s episode of the NPR program Marketplace Money was about credit and credit scores. One of the stories was The power of FICO. It featured Pete Deibel of Winter Park, FL (emphasis added by me):
“Here’s how Pete got punished. Without warning, the credit card companies slashed his credit limits. This even though he kept up his payments as he always had. With lower limits, his card balances instantly shifted from making up 20 percent of his available credit to 80 percent. Suddenly, Diebel looks like a guy who’s living off his plastic. His FICO score dropped 10-points [sic]. That may sound miniscule on a scale of 300 to 850, but it could translate into thousands more in interest payments.”
OMG. His FICO score dropped 10 points! Big deal! It could translate into thousands more in interest payments! Are you serious? Or is that subtle word could rearing its ugly head again?
I don’t know what my FICO score is right now. I can’t care less. Whenever I refinance my mortgage, I have them send me the credit reports and credit scores they pulled. That’s all. During all these years, my FICO score must have dropped and gained 10 points many times. It never bothered me. What should Pete Diebel do when the credit card companies slashed his credit limits? Pay off the balance, or apply for new credit. If he can’t do either, he not only “looks like a guy who’s living off his plastic.” He is living off his plastic.
After reading the Wikipedia entry on credit score, I like the Swedish system the best:
This system aims to find people with bad payment attitude. It has only two levels, good and bad. Anyone who does not pay a requested debt payment on time, and also not after a reminder, will have their case forwarded to the Swedish Enforcement Administration (Swedish: Kronofogdemyndigheten), a national authority which collects debts.
If one gets a request by the Enforcement Administration to pay, it is possible to object to it. Then the one requesting the payment must show the correctness in the court. Failure to object is seen as admitting the debt. If the debtor loses the court trial, the court costs are added to the debt, and the Enforcement Administration fee also. Taxes and authority fees must always be paid on request unless payment has already been made.
How about that? Only two levels: good and bad. A national authority that collects debts. I bet people are very good about borrowing money and paying their bills in Sweden.
Say No To Management Fees
If an advisor is charging you a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice.