Personal Finance Advice

One of the benefits of a life without debt is (some) freedom from the gods at FICO. Because I don’t do debt, my FICO score is not as important to me as it is to some and that takes a lot of worry out of my life. I see many people freaking out about their FICO scores because they know they will need a loan in the near future. They worry about every little thing that could ding their score. Sorry, but that’s not a worry I want in my life.

Obviously, I do have to keep tabs on my score. In a world that is ruled by that score, even the debt free have to know their scores. I don’t want to be penalized on insurance rates or denied a job because of a low score. So I check my credit reports three times a year (using the free AnnualCreditReport.com website) and my FICO score every other year, to make certain that no identity theft has occurred or that some other error has messed up my score. But that’s the extent of my worry.

And it’s a good thing that I don’t worry about it too much. Just the other day, I got a notice from a credit card that they were lowering my limit. Fine and dandy. I only use that card when I travel and I’ve never come close to the limit. It gets paid off every month that it’s used, so the lower limit is not a worry to me. However, I have no doubt that my FICO score will now drop a couple of points because I now have less credit available to me. If I were a slave to my score, I would be freaking out right about now because that ding, through no fault of my own, will lower my score. And I’m sure it will happen again. More and more credit cards are closing cards and lowering limits and even the debt free are not immune to the madness. My score will no doubt drop a few points in the coming months, and not because of actions I take. But I can live with it.

I know many people who are at their wits end because their scores are dropping through no fault of their own as credit lines are slashed and even eliminated. This practice dings the all important “utilization of debt” ratio that comprises a large part of a credit score. When you have lower credit limits and your outstanding debt creeps closer to the maximum, your score goes down. And it’s happening all over the country right now. Some people, desperate for a car loan or a home equity loan are being denied because their scores have dropped, even though they have done nothing to deserve it. It’s cause for concern if you require debt to get through life.

I don’t agree with FICO’s methods for determining a score and I don’t agree with the way a lot of insurance companies, employers, and others use the score to determine who gets what. It’s a flawed system that takes away the human element and places all the control on a computer algorithm that has no concern for you as a person, your special circumstances, or that the credit card companies jacked you around. But it’s the system that the world uses and, like it or not, they’ve managed to make it so that even those of us who don’t use debt have to concern ourselves with this score. But at least someone like me who has no debt and no plans to incur any can take the system in stride. My score does not rule my life and I do not panic when it changes. It’s one less thing I have to worry about in my life and I can only get that peace because I choose to remain debt free.