The almighty FICO

I have very strong opinions about the FICO score and what purpose it serves.  If you know anything about me (and you will after this post), you know without a doubt where I stand.  

So, let's look at it objectively then.  A FICO score, as described by Dave Ramsey is an "I love debt" score.  And the sad part is that we are not only teaching, but encouraging our kids to follow the guidelines of a culture that has "lost its mind" in order to raise this score and maximize the opportunity to get further into debt.  

When you've become convinced that telling your kids to get into debt is better than showing them how to live within their means and save for the things they want, something is VERY wrong. Common sense has left the premises.  That's what the FICO score obsession has forced us to do. Loose our minds and encourage our kids to follow along.  


The FICO score has become the ultimate measure of financial fitness.  But let's really talk about what this score is based on and what it stands for.  The score is based on 5 things. 1. How well you've payed debt in the past. 2. How much debt you currently have. 3. How long you've been paying on this debt.  4. How much new debt you have and finally 5. What types of debt you have.  


The FICO score IS NOT based in any way on your cash position or savings, your income, your net worth, your discipline in living below your means or your investments.  In other words, you could be a millionaire who can write a check for an apartment building but be turned down as a tenant for a 2 bedroom apartment if you've stayed away from debt and have no FICO score. Makes complete sense, right?


The argument always comes up (especially in L.A.) that you MUST have a FICO score to purchase a home because it's impossible to do so without a loan.  The truth is that if you've stayed out of debt and have no FICO score, you can get a loan through something called manual underwriting that actually looks at how well you manage money (not debt).  But most people have NEVER heard of this or considered this as an option and the truth is not every bank does this.  But they do exist and are most definitely an option.

Now I'm not telling you what you should or shouldn't do.  And I know it's hard to be "weird" when everyone around you is not.  I'm just sharing information that I wish I had had access to a long time ago.

In closing, from personal experience, I want to share that a life where FICO no longer rules your world is not a myth and is just so much sweeter.  Not owing anything to anyone, waiting patiently and working your booty off to pay cash for a car, an education or a vacation, living below your means, having an emergency fund and savings for your kids college and your retirement beats the heck out of obsessing over a score that tells the world how well you play kissy face with debt.  And having your kids see that and start their lives that way is truly priceless.