The Myth of Perfect Credit

credit score myths

When I meet for the first time with a person in financial distress, one of the things they are most likely to mention is how they “used to have such good credit!”  I find it remarkable that out of all the negative consequences living with debt can bring- family trouble, tough budget decisions, foregoing vacations and holiday celebrations, putting off retirement- the loss of credit is one of the foremost things on consumers’ minds.

Here’s the thing about credit: it has no intrinsic value.  If you have a perfect credit score, they do not send you a plaque to hang on your wall.  You do not get better parking spaces, or the choicest tables at restaurants.  Having good credit just means that businesses will be more likely to lend you more money, on better terms.

To be sure, having good credit is a positive thing; I’m certainly not suggesting that credit doesn’t matter.  It does not, however, reflect on your moral worth as a human being, and is not a precursor to happiness.  If I were offered five thousand bucks for fifty points off my credit score, I would take the deal.  The importance of your credit depends entirely on what you need it for.

Let me say that again, because it is important: the importance of your credit depends entirely on what you need it for.

If you plan to finance a vehicle in the near future, having a good credit score can save you a few hundred, or even a few thousand, dollars.  While the math is tricky, it can be calculated- your credit has monetary worth in this situation.  If you are financially independent, your ability to borrow may be irrelevant- if so, your good credit score is worthless, or your bad credit does not matter.

Many folks I meet have added “having good credit” to their definition of the American Dream.  I think this importance is largely misplaced.  Approach your finances holistically, and figure out what the economic value of credit it based on your particular situation, not some perceived value based on nothing more than social norms.  This will help you make good decisions about your finances in general, about your debt in particular, and may also help you avoid some of the stress that comes with economic hardship.

One final note: while I believe that the credit score is overblown, credit fraud is a different thing entirely, and should be taken seriously.  If you believe you are the victim of credit fraud, contact these three credit bureaus, and report the suspicious activity immediately.



2 thoughts on “The Myth of Perfect Credit

  1. While I wholeheartedly agree with you that we don’t need to be fixated on a single aspect of our financial health, I think credit serves purposes other than simply borrowing money at a better rate. Now a days, other aspects of our lives are judged by our credit. If I want to have bills turned on in my name and I’ve got bad credit, I’ve got to not only pay in advance (which makes sense) but pay a large deposit as well. I don’t know how many jobs B and I applied to that wanted to check our credit as well. Our culture has become obsessed with credit, so by default it’s a criteria by which society will judge us.

    • One thing to note: when jobs ask to see your credit, they aren’t necessarily interested in how “credit-worthy” you are. They often check for other reasons. For one, your credit lists your prior addresses. If you move around a lot, that is a good predictor that you will not remain at the job for very long. Also, they may be interested to see if you have large monetary judgments, which can come from criminal or fraudulent activity. Some government service is an exception to this: for security clearance, they don’t want you to have too much owed debt. Interestingly, they are perfectly fine if you file for bankruptcy, but if you have a large debt load, you could be compromised (or so goes the theory).

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