Does Dave Ramsey say you shouldn't have a credit score?

[audette]

Yes, DR basically says you shouldn't use credit, ever, so you don't need a credit rating. Or, rather, you don't care about it. It's dumb.

I find myself curious how this affects folks who, say, want to buy a home. Or, like us, who are serial renters - at least some of our landlords have run credit checks on us before approving us as tenants. Or, for the myriad of other reasons why having a good credit rating can help make life easier...

[Deleted]

There are people who are "unscorable" by FICO, meaning they haven't had any activity reported on any account for 6+ months. A lot of people also refer to this as a zero score.

What a lot of people don't understand is that there are a lot of different credit scoring models. Different institutions use different models. Each bureau issues their own score, then you have FICO, CE, Vantage, etc. So even if you have a score of 0 with FICO, you could still very well have a score with any of the other bureaus, because they use different timeframes and calculations. Some of them even take personal bank accounts into consideration and go back years.

FWIW, Dave put it into people's heads that this was possible, and later issued a statement admitting he was wrong after he was called out.

[Deleted]

@lauralynne, your story made me see red on your behalf. The financial services industry is regulated, but sometimes the regulations MAKE NO SENSE. Somehow it was absolutely fine to write a shitload of sub-prime housing loans during the bubble based only on "verbal confirmation" that someone was making enough to afford the payment....yet now, we can't just look at cashflow and past history to make loans, we need certain LTV (which you, industry, screwed us over on). Oh, man, this shit gets me fired up. I listened to a story on NPR the other day about how sub-prime AUTO loans are at (record?) highs - yeah, THAT'S gonna bode well for 'merica. Grrrrr.

My take on DR - he is very strict - but I think he also provides the slap in the face some folks really need to do a 180 (or, hell even a 100 degree turn) on their financial trajectory.

I wish he did acknowledge that a $1,000 cushion is a great target, but some may need more (shit, a big car repair will wipe that out and then some.) And that credit cards are evil, but you unfortunately should have a good credit score, so here's how that's calculated - and your credit history is a part of that algorithim.

His perspective on car loans and mortgages is right up my alley - like Lindy, I loathe debt - but then his religious overtones turn me off. I tried to listen to his podcasts, since Suze's current show is going away I am eager to find more financial podcasts (hit me up with recos) and it just felt like nearly the entire show was about his financial peace university and how great it was. I may need to give him another try (maybe it was just that show), but I really wanted to hear him talk about money, not his products!

OK, rant over - time to use all this energy to kill it at the gym!

[krystee]

@lauralynne I think the company Dave Ramsey endorses (Churchill Mortgage) does manual underwriting for those who are in good financial positions with poor credit scores because they don't use debt. It may be worth giving them a try!

[kadams767]

Jan 30, 2015 0:49:15 GMT -5 @lauralynne said:

Jan 30, 2015 0:25:32 GMT -5 Stan said:

This is exactly what I mean. I fear DR sets up lots of people like this.

I should add I don't have credit cards because I loathe credit.  Not because of anything DR told me.  I loathe debt in general and can't stand owing anyone anything.  But I'm required to play the game.  

I am genuinely curious and not trying to be argumentative, but I am curious about the reasoning behind you choosing not to have any credit. You have a mortgage and want to continue to have one, so you aren't in the NO DEBT OR CREDIT, EVER, camp. From your post, you sound responsible and not like you worry that you can't handle having credit. And it doesn't sound like you were in a position where you couldn't previously obtain credit. Certainly you understand that having credit doesn't necessarily mean having debt, unless you so choose to carry it.

I get that you don't like the "game", but it kind of sounds like you opted out of credit just to not be part of the system. And you knew that, but now that you want/need back in, you're pissed. I'm not really on the side of banks or credit companies, but you can't really expect to essentially take your ball and go home and then expect to play only when it suits you. I do hope the mortgage stuff gets straightened out for you, I don't really understand why it's so hard for banks to understand self-employment income.

[mainelyfoolish]

Jan 30, 2015 0:43:41 GMT -5 @juno said:

Jan 29, 2015 23:51:04 GMT -5 audette said:

Yes, DR basically says you shouldn't use credit, ever, so you don't need a credit rating. Or, rather, you don't care about it. It's dumb.

I find myself curious how this affects folks who, say, want to buy a home. Or, like us, who are serial renters - at least some of our landlords have run credit checks on us before approving us as tenants. Or, for the myriad of other reasons why having a good credit rating can help make life easier...

I thought part of his spiel was owning your own home outright and not needing credit for housing (renting, purchasing or refinancing).  Which, OK I guess.  But IMHO it would be completely insane for me to concentrate on paying down a mortgage with an effective rate after taxes of 2.something rather than taking that extra cash every month and investing it.  Crazy talk.  Even sinking every penny into one asset is sort of stupid to me for other reasons (I live in a non-recourse state; an earthquake knocks this no-equity puppy down and it's the bank's, I'll keep my investments TYVM).  Everything I read about what he says turns me off.  But maybe I don't get it because I refuse to go looking for him to explain himself; everything I know about DR comes from MM posts.

This just gave me good chuckle.

When I bought my first house, I was single with no dependents. Someone from the bank where I had a mortgage called one day shortly after closing and tried to sell me on life insurance to "pay off the mortgage" in the event of my death. I told her I have no dependents, if I die the bank can have the house back.

[scout8]

Jan 30, 2015 5:34:18 GMT -5 @shoegal said:

@lauralynne, your story made me see red on your behalf. The financial services industry is regulated, but sometimes the regulations MAKE NO SENSE. Somehow it was absolutely fine to write a shitload of sub-prime housing loans during the bubble based only on "verbal confirmation" that someone was making enough to afford the payment....yet now, we can't just look at cashflow and past history to make loans, we need certain LTV (which you, industry, screwed us over on). Oh, man, this shit gets me fired up. I listened to a story on NPR the other day about how sub-prime AUTO loans are at (record?) highs - yeah, THAT'S gonna bode well for 'merica. Grrrrr.

shoegal, I have had more than one client have trouble getting a mortgage when they have enough money in the bank to pay cash. Yes, that is right, they have enough assets to buy a place outright, but the bank doesn't want to give them a mortgage. I don't get it. Where is the risk???

[my3bears]

Jan 29, 2015 23:57:41 GMT -5 @lauralynne said:

I can speak to this. Sort of anyway. I have spent 15 years without debt. Or credit. of any kind. No consumer debt, cash for cars, our house (and mortgage) is in my husband's name. And as a result I have a mediocre credit score. And we tried to re-fi our house and because we're married and DH has no income (self employed), we are screwed. Royally up a creek. so I've had to open up credit cards and start using credit. And I'm kind of pissed about it. I mean, I GET it. But it still pisses me off. I'm responsible. I have nice things - I have a healthy savings account - I have paid our mortgage (plus more towards principal) on time for over 10 years. But I'm penalized because I don't carry debt. And everything hinges on that damn 'credit score' - and because of so many people walking away from their responsibility (cry me a river, you're upside down in your house but can still pay your mortgage but don't want to anymore so you walk away??! Eff you. That's a whole 'nother post) the requirements are so much stricter for financing anything including refinancing.

The financing industry is telling me that even though we've been paying our mortgage on time and in full plus extra every month for 10+ years and even through when we re-fi our mortgage will go down by AT LEAST $500 a month (closer to $700 realistically) they say that we "can't afford it" based on their numbers and due to my credit score.

So the lesson is keep a couple of cards - play the game. It sucks. A lot. I'm pissed and I hate it (can you tell?? LOL). But ya, unless you have loads and loads of cash...you need that credit score at some point.

Lesson learned. (sigh)

Also not trying to be argumentative but 2 things -

1. Having credit cards does not have to = having debt. I probably have 6-8 different cards that I use to get cash back or miles, but I pay them off in full every month, and have since I was 18 years old (my parents insisted I establish good credit as soon as I could). I find credit cards to be an excellent way to track my spending and have reassurance that I will get my money back if it gets stolen. When I have used cash in the past I get lax on tracking, plus cash and debit cards have difficult or no security protections compared to credit cards. My BIL had his entire checking account liquidated because he uses a debit card for everything and it was stolen. That just doesn't happen with a credit card.

2. Try a mortgage broker to get a mortgage. I am self-employed and no bank would work with us, even though we had enough cash and investments to put down 50%!!! I found an excellent broker who got it done no problem. He was so shocked no one would give us a loan. 

[my3bears]

Jan 30, 2015 8:21:50 GMT -5 scout8 said:

Jan 30, 2015 5:34:18 GMT -5 @shoegal said:

@lauralynne, your story made me see red on your behalf. The financial services industry is regulated, but sometimes the regulations MAKE NO SENSE. Somehow it was absolutely fine to write a shitload of sub-prime housing loans during the bubble based only on "verbal confirmation" that someone was making enough to afford the payment....yet now, we can't just look at cashflow and past history to make loans, we need certain LTV (which you, industry, screwed us over on). Oh, man, this shit gets me fired up. I listened to a story on NPR the other day about how sub-prime AUTO loans are at (record?) highs - yeah, THAT'S gonna bode well for 'merica. Grrrrr.

shoegal, I have had more than one client have trouble getting a mortgage when they have enough money in the bank to pay cash. Yes, that is right, they have enough assets to buy a place outright, but the bank doesn't want to give them a mortgage. I don't get it. Where is the risk???

I was in that camp. See my above post! We didn't have enough to buy the house in cash, but were considering putting 50% down to get it done. Ugh. We ended up getting a traditional 30-yr with 20% down thanks to the broker we found!

[af1212]

Funny anecdote -

My grandfather was ahead of his time, financially, in many ways. He used to create "mutual funds" of a sort before there were such a thing.  While he lived a modest life, he always saved and paid cash for everything, including his house, cars, college for the kids, etc.

Fast forward to age 88 when we were all visiting at Christmas and he wanted to buy a new car. A Honda Civic Coupe. He was replacing his 1970s VW Beetle.  Because it was almost the new year, he wanted to wait to pay cash until the following week for the car because he didn't want to pull $$ from his investments until next tax year.  He tried to talk with the car salesman - gave him his address, kept repeating his name and saying he was a member of the Presbyterian church, etc as though that would make the guy have faith that he would pay next week

After LOTS of discussion, it was decided that his best bet would be to get a car loan.  He would keep it until the following month and then pay it off completely.  He wasn't comfortable with it at first but finally went along with it.  Then ... they filled out the paperwork.  And he didn't qualify because of not having a credit score!!!  So I, his 21 year old, fresh out of college granddaughter, had to be his co-signer on the loan

Such a funny day

[CrazyLucky]

We took Dave Ramsey's class. I think he has some really good ideas, especially for those people who are really behind financially. But some of his ideas were ridiculous, and I think this is one. I certainly recognize that not having debt is a good thing, and that buying things in cash is ideal. But his argument that you don't really need a credit score to get a mortgage may be technically true, but it adds a huge layer of complication to purchasing a house.
Also, renting a car. He says you can use a debit card for that, and you can. But some companies put a hold on so much of your money that you may be in trouble until they release the money.
We put nearly everything on the credit card. We pay it off each month, and use the rebate/rewards every few months.

[Emerald1486]

Jan 30, 2015 0:55:08 GMT -5 @juno said:

Jan 30, 2015 0:49:15 GMT -5 @lauralynne said:

I should add I don't have credit cards because I loathe credit.  Not because of anything DR told me.  I loathe debt in general and can't stand owing anyone anything.  But I'm required to play the game.  

Eh, it's not really "debt" if you're paying it off every month.  I just think of it as delayed billing with a bonus.  I'm going to have to pay the electric bill no matter what.  Might as well do it with a safe method (much safer than debit), have a good credit score, and get a rewards check a few times a year.  

This is how I do it too. Pay my bills with my credit card, get the points for them, and then pay that credit card at the end of the month. 
Granted, I end up carrying a bit of a balance because of unexpected repairs (hello sink leak) but the bills portion is paid off each month

[Emerald1486]

I have not listened to DR so I'm not sure what his views are. However, I do have some friends that are in their mid 20s and have no credit history because their parents taught them credit cards are evil. That got me fired up! I mean, when my friend goes to buy a car or a house his interest rate is going to be high if he even qualifies. I am trying to get them to apply for a credit card and get in the habit of paying it off each month. As soon as DS is old enough and responsible enough. I am going to get him started with a credit card and teach him responsible financial habits.

On my blog I did an entry on this. My favorite comparison was when I bought a car.
First car I bought I was 21 and had almost no credit history. No credit cards, only a school loan I was paying on. 12.99% interest rate. Fast forward 7 years and I need to get a new car. I now have a credit history, a good credit score, a house, etc. 2.99% interest rate. HUGE difference.

[sporky]

Jan 30, 2015 8:58:50 GMT -5 Emerald1486 said:

I have not listened to DR so I'm not sure what his views are. However, I do have some friends that are in their mid 20s and have no credit history because their parents taught them credit cards are evil. That got me fired up! I mean, when my friend goes to buy a car or a house his interest rate is going to be high if he even qualifies. I am trying to get them to apply for a credit card and get in the habit of paying it off each month. As soon as DS is old enough and responsible enough. I am going to get him started with a credit card and teach him responsible financial habits.

On my blog I did an entry on this. My favorite comparison was when I bought a car.
First car I bought I was 21 and had almost no credit history. No credit cards, only a school loan I was paying on. 12.99% interest rate. Fast forward 7 years and I need to get a new car. I now have a credit history, a good credit score, a house, etc. 2.99% interest rate. HUGE difference.

Agreed. Unless you wealthy enough to where you will be paying for every expenditure for the remainder of your life with cash, you need to take the steps to ensure that you have a decent credit score. Of course, banks either won't loan or give high interest rates to those without sufficient or with poor histories. They have no idea how that person would handle having that debt. 

[kadams767]

@lauralynne, I appreciate the response and I can totally respect that. I truly didn't get that reasoning from your initial post. It makes sense in your case to be hesitant. I'm glad you were able to get back on the right track. I hope you are able to work with your mortgage.

[BeagleMama]

I like DR's practicality about not purchasing things you can't afford but his no debt thing is not for us. We've never had an issue with large amounts of debt or any consumer debt so we manage our existing debt just fine (mortgages, car payment). I once heard Clark Howard make a jab at that theory saying that, sure, if you have had years of issues managing your spending and/or debt than it's probably a good idea for you not to be borrowing money because you can't manage paying it back or you borrow too much. However, for the majority of people, there is no need to cut up all your credit cards and run screaming for the hills. The reality is that there is a need for good credit and records of your consistent payments to purchase a home or invest in a new business.

[Deleted]

I have to have good credit for my job. I've had 4 jobs over my career that have checked my credit. My current one will check it yearly and I signed an agreement for them to do so. I can appreciate not wanting debt, even a mortgage, but not having credit makes no sense to me.

[my3bears]

@lauralynne in that situation I completely understand. What I might suggest now that you *have* to play the game is to try to beef up your e-fund? As a self-employed "breadwinner" in my household, my income fluctuates dramatically month to month. There are definitely months that our income doesn't cover unexpected expenses. But I keep a larger e-fund than usual so I'm able to cover those unexpected expenses without carrying a balance on the cc.

[thatgirl2478]

Jan 29, 2015 23:57:41 GMT -5 @lauralynne said:

I can speak to this. Sort of anyway. I have spent 15 years without debt. Or credit. of any kind. No consumer debt, cash for cars, our house (and mortgage) is in my husband's name. And as a result I have a mediocre credit score. And we tried to re-fi our house and because we're married and DH has no income (self employed), we are screwed. Royally up a creek. so I've had to open up credit cards and start using credit. And I'm kind of pissed about it. I mean, I GET it. But it still pisses me off. I'm responsible. I have nice things - I have a healthy savings account - I have paid our mortgage (plus more towards principal) on time for over 10 years. But I'm penalized because I don't carry debt. And everything hinges on that damn 'credit score' - and because of so many people walking away from their responsibility (cry me a river, you're upside down in your house but can still pay your mortgage but don't want to anymore so you walk away??! Eff you. That's a whole 'nother post) the requirements are so much stricter for financing anything including refinancing.

The financing industry is telling me that even though we've been paying our mortgage on time and in full plus extra every month for 10+ years and even through when we re-fi our mortgage will go down by AT LEAST $500 a month (closer to $700 realistically) they say that we "can't afford it" based on their numbers and due to my credit score.

So the lesson is keep a couple of cards - play the game. It sucks. A lot. I'm pissed and I hate it (can you tell?? LOL). But ya, unless you have loads and loads of cash...you need that credit score at some point.

Lesson learned. (sigh)

Did you just go to a standard mortgage company for your refi?  I know that DR recommends is Churchill mortgage - they do manual underwriting which is what you'd probably need given the fact that you have little to no credit by your own choice.

[imojoebunny]

Having no credit score will prevent you from living in a decent apartment, should you need too. You would also obviously never be able to get a mortgage loan or home equity line. There are jobs for which you would not qualify, as well.

When I leased apartments years ago, we had a few tenants with no credit at all. Not bad credit, no credit. They were every bit as schetch as the people with horrible credit. They also had to pay 6 months up front (basically the full cost of the lease).

I remember listening to the president of Cash America Pawn (it is considered a bank and my friend followed the bank stocks for a brokerage), he said, "My customers are the salt of the earth. They are hardworking and pay cash for everything." Of course, when they run out of cash, even temporarily, he was more than happy to charge them ridiculously expensive rates to borrow on collateralized loans.

[thatgirl2478]

Jan 30, 2015 10:44:16 GMT -5 @lauralynne said:

Jan 30, 2015 10:19:02 GMT -5 thatgirl2478 said:

Did you just go to a standard mortgage company for your refi?  I know that DR recommends is Churchill mortgage - they do manual underwriting which is what you'd probably need given the fact that you have little to no credit by your own choice.

I think we will try that. We did only try a regular mortgage broker

I hope they can help!  The situation you're in is crazy!

[thatgirl2478]

Jan 30, 2015 10:42:13 GMT -5 @lauralynne said:

Jan 30, 2015 9:48:12 GMT -5 my3bears said:

@lauralynne in that situation I completely understand. What I might suggest now that you *have* to play the game is to try to beef up your e-fund? As a self-employed "breadwinner" in my household, my income fluctuates dramatically month to month. There are definitely months that our income doesn't cover unexpected expenses. But I keep a larger e-fund than usual so I'm able to cover those unexpected expenses without carrying a balance on the cc.

We have a sizable e-fund. My DH is self employed with no income and my job is relatively stable. We don't need the credit cards - or the credit - but it still feels like temptation. For whatever reason - maybe my brain is just wired that way.

I know I spend more $$ when I use credit than when I use cash.  It's not just a matter of 'I only HAVE this much cash' because it easily happens when I have $500 or $50.  The online shopping is the worst - I have my card # saved in so many places all I have to do is click & buy. 

[kitty63]

My DH had a zero credit score at one point. He used cash for a lot of things and had a credit card through his job that he could use for personal expenses. Since it wasn't in his name it didn't link to him with the credit bureaus. He had paid off his truck and had no debt. We went to a home buying class and they couldn't pull up anything on him. The woman was shocked that someone could have NO credit. He opened a credit card and used that to build a score.

[craftyone]

I would never want to have no credit history. Granted most of our credit history is not just currently information but all the credit lines from the last 7 years. In my past life, I used to program the criteria for a top used car dealer in the US. You would be surprised at all the criteria in a credit report it parses out to determine what tier lending and the rates. Last time we changed our model it took multiple years make changes to our systems.

Just for the piece of mind, I will continue to use credit (even if we are 100% debt free). I just never know when life situations change and we might need it. Plus I love the fact that I can with my credit score get 5 years of a car payment at 0% and using a 2% cash back credit card we pay off monthly. Seems illogical to not take advantage of it.

[lys]

We are debt free and rather debt averse, (mortgage paid off and buy cars with cash) but still keep our credit accounts active. We put everything on them and pay in full each month (love those points).
You do NOT have to be in debt in order to have the "best of both worlds" (no debt & a good credit score).

[Deleted]

In case anyone is interested- a large number of "unscorable" people with zero scores are actually higher income professionals.

I think the assumption is that people with no score are a financial liability for lenders, but studies have shown that many of them actually look really good on paper, with jobs that enable them the luxury of never needing to finance anything.

Until they do need to finance something. lol

[delawarejen]

@lauralynne - I followed Dave's way of doing things - paid off all my debt including a house. I didn't even open my first standard credit card until a few years ago. But now I find myself in a situation where it's best for me to sell my house and move to an apartment. Apartment rentals require credit checks. My only active accounts are credit cards, neither of which carries a balance. I hope it's enough. I keep forgetting to let the charges sit on the card long enough to report to the bureaus - I tend to pay them right away.

One of the reasons I like YNAB so much is because it only cares if you have the funds to cover the purchase. If I do, it doesn't really matter whether I pay cash or a debit card or use a credit card and then pay the credit card. I still don't use credit often (and it's only to keep the accounts active or to get the store discount), but at least this way I don't feel guilty about it or have to go through a bunch of logistical issues.

[Melissa W.]

Jan 30, 2015 12:27:56 GMT -5 papiercherri said:

In case anyone is interested- a large number of "unscorable" people with zero scores are actually higher income professionals.

I think the assumption is that people with no score are a financial liability for lenders, but studies have shown that many of them actually look really good on paper, with jobs that enable them the luxury of never needing to finance anything.

Until they do need to finance something. lol

I find this with commercial customers that need to personally guarantee a loan.

[SJ]

Jan 29, 2015 23:46:21 GMT -5 Stan said:

I know someone took DR's class, Sarajoy maybe? Whatever happened to her, btw? Did we lose her to MMM?

Why is DR so extreme and how do so many people love him? Gosh.

I am here!

I did go through DR's class, in a desperate attempt to knock some sense into BIL/SIL.

I disagree with him on many points, however, and this is just one of them.  From what I gather, yes,  he would ideally like people not to register on the credit ratings in any way. I'm sure it is easy for him to pay cash for everything because he has tons of it, but it makes no sense to me for the vast majority of people.

Not only do I use credit cards wisely, but as I have said a million times I also purposefully leverage low interest debt. There are so many other things I would like to see people do with their money before stockpiling cash at 0%.

[cheezer]

In order to purchase a home in case and not have any debt, you need to rent (usually for a fairly long time). My landlord definitely checked my credit. This seems like the worst advice ever.