Do You Really NEED Credit?
December 19th, 2007 by Ana
Last night my father-in-law stopped by again for a quick visit and a sleepover while he is travelling from frozen Indiana to his home in sunny Florida. Y’all might recall last time he visited, I got treated to the new car and leased car arguement…well last night he made the statement that we supposedly NEED credit to function in today’s American society.
Let me back up to what started this: I asked hubby if his dad had ever seen or read my blog, with the intent of showing off our debt reduction pie chart in the sidebar and maybe sending the subtle message for him to ease up on his strange money advice. He saw the name “Debt Free Revolution” and made a remark about how he had seen some guy on TV and what that guy said was “not earth-shattering.” I innocently asked if that guy might have been Dave Ramsey, because Ramsey now has a television show. When FIL confirmed it, I offered to give him a Dave Ramsey book.
What followed next was not pretty: apparently my father-in-law is a rather harsh critic of Dave Ramsey…AND the concept of a debt free lifestyle! He firmly believes that cutting up the credit cards, paying them off, and closing those accounts is financial folly. He used the example of trying to buy a brand new car…which he thinks must be done through financing. I simply said I have no intention of buying brand new nor financing.
OK, FIL said, if I can pay cash for a car then all the power to me. But he said I will still need credit for a mortgage, and I tried to tell him I got my mortgage in 2001 with BAD past credit and only one income factored into the equation; zero-down VA loan no less. I don’t intend to get another mortgage until this one is paid off in full, so his arguement about carrying a house note while trying to get financed for another is moot. We also intend to have a good sized down payment for the next house (still half a dozen years into the future) so I really don’t anticipate mortgage problems when we do decide to move.
I think the statement FIL made that troubles me the most was that you MUST have a credit card (or cards) AND you “must” carry a balance. Carry a balance?? At those interest rates? He advocated rate shopping, which is something my mother also does, but that doesn’t make sense to me. (Remember I am a little bit of a numbers nerd.) Why would I want to have money in savings, even if it’s a good money market, then pay almost twice that interest rate to carry a credit card balance?
Honestly, I think the most powerful argument in favor of a debt-free lifestyle is what I just got done dealing with: the repairs on the Pizza Taxi. One year ago, just before I found Dave Ramsey, $509 in car repairs would have been a major money crisis for us. We might have put it on a credit card if there was room, or we might have gotten an AER loan (Army Emergency Relief I think) despite how they treated me years ago when my old Bronco blew the engine. There is simply no way just one short year ago we could have cash flowed these repairs!
Hubby and I briefly discussed it over coffee this morning, and we both agree: We are in MUCH better financial shape now than we were a year ago. We don’t know his parents’ full financial picture, and we aren’t nosy enough to ask either. It’s quite possible his parents are doing many times better than we are. But we are quite pleased with the way are financial future is headed…and that future does not really include credit!
Oh, as a final note, father-in-law said he discussed it with mother-in-law…and I am no longer allowed to ask for appliances or furniture as presents. I am supposed to ask for something more personal, nto practical. There goes the dryer idea…
Posted in Uncategorized |
December 19th, 2007 at 2:15 pm
I have gotten the exact same response from various people about credit cards, credit, houses, cars, emergencies… you name it. The upside is that in just six months my wife and I have gotten to the point that we can cash flow murphy’s visits for little things and have been able to stop wrestling with money and instead start using it as the tool it is.
You could use debt as a tool, but with that you’re someone else’s tool first.
Maybe you can ask for gift cards to clothing stores and then use the gift cards instead of your budgeted clothing money?
December 19th, 2007 at 2:41 pm
Randy…not a bad idea about the gift card idea. But does Goodwill and Salvation Army Thrift Shop have gift cards/certificates? LOL I tried asking for Kroger and Wal-Mart gift cards with my family. Let’s just say the reaction was “not quite” positive! LOL
And I hear you 100% on cash flowing Murphy visits! Looking back, now that the car issue is settled…it feels good
December 19th, 2007 at 3:24 pm
You could always sell the gift cards and use the money at whatever store.
Tell your father-in-law that my dad works in the credit industry…and you never need to carry a balance.
In fact, they will be NICER to you and more generous with you if you don’t carry one. Why? Because they know they can trust you to pay back the money. They might even raise your limit and hope you’ll start carrying a balance. (Or offer you a car loan.)
My dad’s company required them to do customer service for a half-day each month, so he’s actually been trained on this kind of stuff.
The only reason to carry a balance is if you’re surfing it on 0% cards. And not accumulating it. But that doesn’t help your credit score at all, so it’s dumb. Sorry, but your father-in-law is a complete dupe of the credit card industry and you’re spot-on. At least this didn’t rub off on your hubby.
December 19th, 2007 at 3:40 pm
Mrs. Micah: It DID rub off on hubby..see the section called “Reluctant Spouse”! I’ve just been working hard over the past several months to reprogram hubby’s thinking, and now have the results now to show for it
December 19th, 2007 at 3:41 pm
Get used to that kind of response. The in-grained indoctrination in our society about debt will have anyone that’s not had the ‘Dave Ramsey revelation’ saying the same thing.
Unfortunately, there are a couple of things that could affect you if you have no credit or bad credit, regardless on whether you have any debt.
1) Car Insurance - More and more car insurance companies are basing part of their quote on your FICO score. That means that if you have bad credit, they’re assuming that you’re a lousy driver and you won’t pay them on time either. Unfair, but it seems to be more and more the fashion recently.
2) Job Interviews - Again, like with Car Insurance, more and more job interviews require you to sign for a credit check. They’re doing the same thing as the insurance companies, deciding whether you would be a good fit based on your credit score (which, I believe has nothing to do with how good a worker you are).
Both situations suck. You need to have a good credit score, but that doesn’t mean you have to carry any debt. In fact, to get a good credit score you pretty much have to do the opposite, pay off all your bills and not abuse credit. The other thing is to simply NOT close the accounts, but cut up the cards. Leaving the accounts keeps the FICO healthy, but cutting up the cards prevents you from using them anymore.
December 19th, 2007 at 3:50 pm
Randall, I have heard about both of these happening, and in response to #1 I have a NINETEEN YEAR good driving record with my insurance company, so they better not even think about doing that one to me! As for the job one, that still strikes me as odd. Thankfully you don’t need a credit check to deliver pizzas though LOL
December 19th, 2007 at 4:11 pm
Some people will never get it. All we can do is be thankful that WE get it!
Bummer on the gift thing. I love getting practical gifts that I really need, instead of a bunch of junk I don’t.
December 19th, 2007 at 4:50 pm
Perhaps you should ask for toiletries and clothes - even if they are more expensive than you’d choose yourself, at least they’re useful.
Parents often have a hard time believing that you know more than they do. I find it’s not worth an argument.
December 19th, 2007 at 5:53 pm
Ana Says: “…I have a NINETEEN YEAR good driving record with my insurance company, so they better not even think about doing that one to me!”
——–
Anna, they use your FICO score to set your RATE. So you’ll have no idea whether they’re doing it too you or not. You’ll just pay more without knowing why.
I’m relatively well-off and haven’t had a mortgage for many years. In fact, I didn’t use credit for 10+ years. I didn’t even have a credit card. One day I was buying a coat and the store clerk offered to take 20% off if I’d sign up for their credit card. I agreed because it would have saved about $30. Well, I had dropped off the credit radar altogether, so I couldn’t even get a crappy store credit card!
When I got home I went in to my credit union. They knew me and gave me a card with as high a max as I wanted - no questions asked. That was several years ago. Now I use it occasionally, just to keep my FICO score up so I don’t get gouged on car insurance (but I’ve never paid a penny in interest). This doesn’t get me the best FICO score, however. Out of several FICO tiers used by the insurance company I was second from the top - even though I have zero debt, pay all bills before they are due (never been late in my life), and I have assets well into seven figures. It’s nuts!
I discussed this with my insurance agent just a few weeks ago, and she confirmed that they ARE using FICO scores in their rate formula, and that every company she knows about is doing it. She’s an independent agent. Just another way for insurance companies to stick it to us.
It’s possible to do just fine without using credit - I know, because I did it for years - but there are some hidden costs if one drops off the radar completely.
December 19th, 2007 at 5:53 pm
I have to agree with Randall’s reasons for having credit, as well as for extreme emergencies. You don’t have to use the credit, but having a line of available credit, and a positive credit score is wise (so long as you have the self-discipline not to use it). I believe even Mr. Ramsey would agree with that.
December 19th, 2007 at 6:23 pm
Patrick, Patrick, Patrick…didn’t we go over the emergency thing a few months ago?
For the record, Mr Ramsey would NOT agree with that at all. The only debt he says he doesn’t yell at people for is a 15 year mortgage. He also brags about having NO FICO score, having fallen off the radar as Bob mentions.
Plonkee, hubby agrees with you on the “not worth the argument” idea.
Re: the insurance rates, I must still have enough on my credit report because I have an insurance rate that makes my younger male coworkers cry LOL
December 19th, 2007 at 9:17 pm
I’m 3 years w/ out using a credit card - BEST DECISION I HAVE EVER MADE, PERIOD!
The psychological impact of using CASH ONLY cannot be overstated…
If you don’t have the money, you don’t get the item…
As for insurance companies and employers…
I’ll just do business w/ a different insurance company
and choose a different employer…
There are like, 500 insurance companies, and I’ve found
dozens that have great rates and never run a credit check..
NCN
December 20th, 2007 at 2:02 am
[…] for this post came from DebtFREE-Revolution. I decided I wanted to put my spin on […]
December 20th, 2007 at 11:12 am
NCN, you are my debt-free hero in the pf blogosphere!
December 20th, 2007 at 2:30 pm
[…] the pervasive idea that you “need” credit to survive […]
December 21st, 2007 at 1:06 pm
[…] people “need” credit to survive […]
December 22nd, 2007 at 8:51 am
I agree with Mrs. Micah - the card companies love on you like never before once you stop using them.
As far as the credit scoring issue - Companies choose how much they use it, and because insurance is regulated on a state-by-state basis, how much a company is allowed to use your credit score varies depending on where you live. Credit scoring actually has less to do with whether or not you’ll pay, and more to do with whether or not you’ll file a fraudulent claim. Fraud costs companies a LOT of money each year just to investigate, and they’ve discovered that folks with poor credit are more likely to file fraudulent claims.
When I worked for an agency, credit scoring was just starting up and we weren’t using it on our current customers. I’m not working the agency side anymore, but it really wouldn’t surprise me if they check it like they check driving records: if we had a longtime customer who kept a lot of policies with our agency and always paid on time, we didn’t run their mvr. Why rock the boat?
I’ve been able to get jobs even with gawd-awful credit, so I have no idea how much it us used as a factor in their hiring. I think it varies based on company and job description. If you’re applying to be a bank teller, I would imagine your employer would be very interested in your credit score. My current and previous employers did not check my credit, though I did handle money quite a bit in my previous job. If they want you, I think they’ll ignore it. If they’re trying to weed out applicants, it might be a bigger issue.
My biggest fear used to be not being able to get an apartment due to my credit score, but that did come to pass, either. Granted, my credit score is much higher now than it used to be, for various reasons. But even three years ago, when it was in the dumps, the only thing I had a problem getting was more credit.
December 24th, 2007 at 9:51 am
[…] Do You Really NEED Credit? @ Debt Free Revolution: Amazing, how some of the people in our lives can have a completely different view of finances than we do! Money beliefs and values can fall on such a wide spectrum. […]
December 24th, 2007 at 10:53 am
[…] Do You Really Need Credit? […]
December 24th, 2007 at 12:06 pm
I feel your frustration. We all have relatives like this. For me its my mother-in-law - she calls the bank to get her balance so she can go shopping, she will shop on Christmas Eve, pay full price and charge to a card she can’t pay. Then return the gifts she gets after Christmas at the sales price to pay for the ones she purchased on Christmas Eve. My wife has tried to reason with her mother, but it is hopeless. To make things worse, her mother belittles the way we have chosen to live (debt-free and responsible). [sigh]
Best Wishes,
D4L
December 25th, 2007 at 5:28 pm
[…] I have used the excuse of wanting to earn more, and have so far only ended up spending more. Ms. Ana of Debt Free Revolution has a major aversion to debt and credit cards and is not thrilled with her father in law saying […]
December 26th, 2007 at 8:24 pm
Kinda makes you wonder if the spendthrift parents will be begging for help in the future when they’re old and out of money.
Re: all the family arguments about money like this on TMMO, why do people even discuss it or try and convince each other? It’s just not a subject of conversation in our family.
December 29th, 2007 at 8:32 am
[…] doesn’t like credit cards and well…. we all know I love credit cards! She just finished battling with her father-in-law about debt, so now it’s my turn! Game day is January […]
April 8th, 2008 at 7:50 am
In the past few years the credit lines have been extended to the limit where one can buy anything without a deposit and only with an ID card. This fools people into selling their lives to debt and banks. I realized a product is cheaper if bought on the spot instead of using credit.
April 20th, 2008 at 4:25 pm
If one lives their lives on the idea that they need credit then they’ve already sold their souls to the devil. Being always in debt is the worse thing a person can do to ruin their lives. I prefer to buy everything cash. This monthly fee option is only a method of stealing money. Instead of buying a product at his original price, one pays 150%. Some people might say that they don’t afford to pay anything cash. They are right. We are too poor to afford cheap things. I’d better buy an expensive piece of equipment and have it working for 5 years instead of buying a cheaper one every year. The secret is to put some money away for these kind of expenses.
May 7th, 2008 at 9:39 am
I guess that when it comes to investing, people have different approaches on the matter and as Latins say: “De gustibus et coloribus non disputandum”. It is better to act following your own goals and your own road.