How does one get a perfect credit score? I’m in the military. People around the office ask me for for financial advice. They know I’m a “money guy” and word gets around that I like talking investing and real estate.
I warn people they won’t like my advice. They usually don’t.
This guy didn’t.
Recently a co-worker told me he’s got $20,000 burning a hole in his pocket, and what I think about investing in the British Pound. With the Brexit, it seems like a sure thing!
I told him this kind of speculation in currency isn’t for everyone. Even those who devote their lives to studying this are wrong more often then right. I warned him this would be a fun way to lose money quickly on something he doesn’t understand. It seemed like he took that to heart.
Guy: “Ok, I got a better idea! What about gold!?!?!?”
Me: Shit. (silently in my head)
I told him I have a different approach to investing. With an extra $20k and with no debt (awesome), consider fully funding retirement accounts first.
Guy: “O no, I still have debt!”
Me: How much?
Guy: $20,000 in credit cards.
COME ON!!!!! (Loudly in my head)
Me: Pay off your credit cards. Then we’ll talk.
Guy: Won’t paying off my cards ruin my credit?
Me: WTF are you talking about?
Guy: A financial advisor told me to carry credit card debt to boost my credit score.
WHAT THE!!!!!!
This is a high-ranking, intelligent military member.
Who spreads this crap around? The idea of taking out debt on purpose to raise your credit score so you can qualify for more debt sounds stupid if you say it out loud a few times.
I remember in college how I was targeted by credit card companies that told me their cards would help build my credit. They set up booths on campus with attractive woman giving out gifts for signups.
Yes, they gave me some free shit when I signed up (frisbee), but I didn’t read the fine print, and paid annual fees and high interest. I maxed them out and paid late fees a few times. CREDIT ROCKS!!!!!
I digress.
Back to the point of this article. I will show you how get a PERFECT credit score. I’ll admit, I haven’t done it yet. As hard as I try, I can’t seem to get my credit score down to zero.
Rich, I think you’re confused! 850 is a perfect credit score!!
No, I’m pretty sure a perfect credit score is zero.
It depends what you want. Do you want to be perfect at debt? Score an 850. It means you are perfect at borrowing money and paying it back. That will come in handy in life! (Insert sarcasm here)
Now you qualify for tons of cheap debt. You can officially buy a much bigger house than you actually need that you will regret buying later (me).
You don’t need that worthless credit score because you don’t need to buy a house. It’s another myth.
Buying a house is often a poor investment. It was in my case, even though I owned it for 13 years, and bought it well before the bubble!
A perfect credit score of 850 means you are awesome at debt. A perfect credit score of ZERO means you are awesome at MONEY!!
What!!!
Look, if you’re in debt and are more concerned about raising your credit score than paying off your debt, you need to think about your priorities.
Why is there a myth out there that we should have enough debt to have an awesome credit score so we can get more debt as cheaply as possible?!?!?!?
Absurd. But some people LOVE that myth!!!
The banks, mortgage companies, credit card companies, and everybody but you makes money when you sign up for credit cards!!! (I thought it would be funny to have an affiliate link for a credit card at the bottom of this article, but I’m too lazy to set it up, plus no one reads this blog)
So what should you do?
Shoot for a perfect credit score of ZERO.
If you stop using credit entirely, your score will eventually become zero, but I’m not sure we have to go that far!!!
What I really mean by shooting for zero is zero debt. Paying off your credit cards and your debt as quickly as you can, and not giving a $hit about how it affects credit scores.
You don’t need credit (debt) to become rich. You need to be debt-free, and then invest and save well.
Do you need multiple credit cards to charge a bunch of stuff to inflate a worthless credit score?
HELL NO!!
With this attitude towards debt and credit scores, it’s a good thing I’m not a real estate investor!!!!!!
O wait. I am!
And I used real estate to become financially independent WITHOUT USING DEBT.
I’m up to 20 single family homes. I have no need for perfect credit. I have no need for credit, period.
Read my Complete Guide to Real Estate Investing.
Rich on Money
“Plus no one reads this blog” …….I do
Thanks John! You are awesome.
You were mentioned in a new book that is popular in the FI community, the simple path to wealth . This blog might pickup in popularity.
About not caring for a credit score, what about people just starting to accumulate wealth, who need a loan to get the first property. Isn’t it better to get a loan for a lowrt rate? I agree that being able to pay for property outright and screw the credit score is a great philosophy if you are able to .
Good point Leo. To that I will say, depends on how much debt you have when you go to buy that property. If you already have a mortgage, I wouldn’t get a 2nd. If you have credit card debt and car loans, I would knock those out first.
This is where I differ from most investors. I don’t use “good debt” because I don’t believe good debt exists.
If you have no debt or mortgages, and can put at least 20% down, then go for it, but pay that mortgage off as fast as you can, before buying a 2nd property. That’s going to be my advice. Using debt is a “get rich quick” while risking “getting poor quick”. It’s about risk tolerance. I advise against taking that risk of multiple mortgages.
I love this advice, and I work in the lending industry! I realize it sometimes takes money to make money, but the credit and debt system in the US is a racket that most people should avoid. Not to mention, the algorithms used by the credit bureaus are so convoluted, no one really knows how they work. It’s a scam.
Thanks Ned. Your advice is spot on!
Even if you are aiming for a high credit score, lower percent credit utilization will help your score, AKA paying down your credit card debt will increase your score immediately, It frustrates me when i hear the same thing, “carry a balance to improve your score” sadly I believed it at one point too
Your right. If you get rid of your credit cards, and totally stop using credit, that’s when it theoretically goes to zero after a certain amount of time.
Awesome! I wrote a similar article few weeks ago, explaining how my credit score is ZERO because I never had debts 🙂
Well, also because I don’t live in these countries where there’s a credit score fad!
Amazing article, amazingly written!
The minimum credit is 300, not 0. There is no such thing as a 0 credit score.
And having a non-existent credit history is also not the same as having a 0 credit score. In that case, you just wouldn’t have a score.
Good point. I am kind of using it as a metaphor, but I’ll admit, I didn’t know better. My goal was a score of 0. Zero debt. That’s what I have.
Thanks for the comment. Rich
I read this blog!
Two people are confirmed to have read this blog. That’s good news! Thanks!!!!
I read it a lot too. The writing is amazing!
I get your point, and it’s a good one! People should know though that a person’s credit score affects lots in their life besides the cost at which they can borrow money. Some jobs require good credit. Right or wrong, insurance rates are often dependent on credit score. Often a good credit score is required to rent an apartment or home. Vendors like the electric company may require a hefty deposit if the customer’s credit score doesn’t pass muster. And typically one needs a good credit score to qualify for 0% auto and other financing offers.
Still though, if a person is not good at handling credit, best to not borrow money, no matter what!
I get your point as well. I think good credit and a good credit score are different things. I would argue that if your only problem is lack of credit history or recent credit, and no late or bad debt, none of those things you listed would be a problem. You certainly shouldn’t apply for credit because you heard you need it to get a job or rent an apartment.
“The banks, mortgage companies, credit card companies, and everybody but you makes money when you sign up for credit cards!!!”
The idea is that everybody but you makes money. Having never paid interest or charges on my credit, but receiving cashback on purchases I’d make anyway (food and petrol mostly), I’m quite merrily making a bit back from my credit cards. Of course, you have to spend to get the cashback, but I don’t fancy stopping buying food 😉
I don’t disagree. I’m currently at the beach in Rio de Janiero. Compliments of travel hacking credit cards. That being said, I’m been out of debt a long time. Most people have no business signing up for more credit cards, especially if they are still it debt.
Dave Ramsey talks about how he doesn’t have a credit score. He says since he pays with cash for everything that he has no credit history. He’s even pulled credit reports to show that he has no credit. Congrats btw on the perfect credit score!!!
Rich, I have had debt, lots of it. My wife and I made a decision to cash out a IRA. Paid our house off first. Then as many of credit cards as possible starting with lowest balances and working my way up. Still have four. Will focus on one with lowest balance first, working my way up with the snowball effect.
All that to say, I like your advice, and I got to your blog from twitter. As you recently followed me on twitter @donotpanicmedia .
My credit score is close to 800. No mortgage, own my home, wallet full of credit cards, all of which are paid off monthly. Only “debt” is some furniture bought on the five years same as cash plan.
Hey Rich, fellow Air Force officer here and office “money guy” too. I’m with you on the credit score thing. I hear dumb things like “I’m keeping my auto loan going to increase my credit score” regularly. It’s sad that the banks and money lenders have confused people this much. Personally, my wife and I are out of the housing market for a while (two overseas assignments coming up) so we’re just using our 820+ credit scores for some sweet credit card sign up bonuses. Great site by the way!
Great post. There is no reason to carry debt for the sake of getting more debt! I agree with a mortgage in principle (as long as buying favors renting), and of course you want a higher score so you can get good rates, but past 750 it doesn’t matter. I think far too much stress is put on the number, and it’s directly coming from all the “free credit report” and “free credit score” advertising business going on. Eliminate the debt, and you’ll have a far better life.