We chase credit scores, obsessing over them as we tumble into and out of debt. It’s a curious thing, and I’ve never been content with the reasons given to me by my clients.
Because I may want to buy a house someday.
Because I need to rent a car or get a hotel room.
Because. Because. Because.
We chase the credit score because it feels like a passport to a world of financial freedom.
What does a credit score mean in the real world?
Your Credit Score After Debt
When you come out of bankruptcy, your credit score is lower than it would be had you been paying your debts on time. It is, a reflection of the fact that you didn’t pay according to the terms of the original agreement with the creditor.
It’s similar to paying a debt that’s been in collection, or in settling a debt for less than the full balance due. Depending on your situation, one solution may hit your score more than another. But in the end, it’s just a reflection that you entered into a contract to repay a debt and then failed to do so.
What Your Credit Score Really Means
But look beneath the surface and consider what the score says in the first place. It’s a numerical indication of how well you pay money you owe to other people.
When you don’t owe money to others, you are likely going to have a lower credit score. Though the scale doesn’t go that low, it’s effectively a score of zero.
Thus, someone who lives without credit or debt is going to have just as low of a score as someone who went through a bankruptcy some years ago and never bothered to re-establish credit after the discharge was issued.
Neither owes any money. No debt, no credit, no score.
Is one person more financially stable? It one a better person than the other? More trustworthy?
Why Caring About Your Score Is Overrated
If you’re in either situation, there’s no reason for you to care. Why not? Because rather than spending money each month to pay back debts, you could be putting money into the bank. When you want to buy something, you pay for it using (gasp) cash.
I know, it’s nuts. Seems almost un-American. But if you go that route, you’ll never pay a dime in interest to a creditor. You’ll buy something and pay for it once rather than every month for years down the road.
Want to rent a car? There are lots of car rental companies that accept debit cards for your rental charges (Avis and Thrifty, for example).
Need to reserve a hotel room or pay for airfare? Use your debit card.
Want to buy a car? Save up your money and pay cash for a used automobile – or hang onto the old one long enough to give you the time you need to save up for it.
Potential landlords and insurance companies who check your credit for approval purposes may be a bit of a headache, but most often you can provide a copy of your bank statement to prove that you’ve got the financial backing necessary to live up to your part of the bargain.
Mortgage lenders may be tricky as well, but if you’re coming out of a bad financial situation there’s a good chance you don’t have the downpayment right now anyway.
In the end, a credit score of zero isn’t an insurmountable problem. Consider your financial goals and forget the number.
Jay S. Fleischman, the Managing Attorney of our Southern California office, speaks regularly at national events on the subjects of credit, debt, bankruptcy, and consumer protection. 
David B. Shaev, the Managing Attorney of our New York office, has been a bankruptcy lawyer for over 35 years. 
I definitely agree that the “score” is overrated. I always tell clients that the credit score should be moved down to the bottom of the list of concerns when filing bankruptcy.
It is just more brainwashing by the powers that make billions in profit from the rest of us. I’ve been living without a credit card for 4 years now. I only use by debit card when necessary to buy airfare or to take cash out of the ATM; and use my bank’s online bill pay for the few bills that I can’t pay online using my debit card. At first it was a bit nerve racking because I was so brainwashed into believing that I “needed” a credit card for emergencies. But I have a savings account for those now. And, you know what? I have always had plenty of money in my savings to cover any unforeseen expense. I don’t care about any of my 29 or so credit scores and find that by paying in full for what I do need – no one else cares either.
If only life was this simple for most people. If you don’t have a job or have a job that pays less than a living wage so you have to choose what bills to pay at the end of each month or how much to spend on food – even with an EBT card – you won’t have the money to save, won’t be able to buy a car except through one of those “buy here, pay here” places, often operating without a state lending licence, you have to have a credit card and a good enough score to avoid paying high interest rates or being refused apartments or other loans. A local credit union is the best place for banking and getting a good deal on a credit card.
Great article Jay! Dave Ramsey and our department have been helping people not bow to the alter of the FICO score for years. We’re glad to help you or anyone give hope and practical tools to the debtors anytime. Keep up the great work and information!
Way to go, Jay! I couldn’t agree more.
It’s often frustrating to help people break out of debt slavery, only to hear the cry “But what about my FICO score?” As Dave Ramsey says (and Dan Rolfson quotes above): “Stop worshipping at the altar of the FICO Score!”
I’ve got great news — you don’t need it. What you need is financial stability and the wherewithal to handle the temporary financial storms of life.
In other words, an Emergency Fund. (I feel a blog post coming on….)