Dave Ramsey says FICO is "Stupid" ????

[increasingmyfico]

I stumble upon a lot of Dave Ramsey's posts. His advice is great if you live in 1952. For those of us in 2021 not so much. Paying cash is counterproductive to accumulating wealth. 

[Anonymalous]

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@SoCalGardener wrote:

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@CreditInspired wrote:

I'm 69 yo and don't know a single person--relative, friend, coworker--who paid all cash for a house. Over my various careers, I've been a Realtor for  10 years, and again, not one all-cash buyer. Now, I know it happens, but it's not the majority.

So my question, and what I don't understand, is why is she solely invested in one man's theory so much so that she is crying. Why didn't she ask her relatives, her friends, her parents, her coworkers if they purchased their houses using all cash. 

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Just goes to show what a variety of people we have here! EVERYONE in my family paid cash for their houses--and all other real estate they bought. For example, my grandmother owned rental properties throughout Pasadena, both residential and commercial, in addition to her personal homes, and paid cash for every single one of them. When my husband and I got a mortgage to buy our house, that was a first in my family!

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My family tends to pay cash for houses and cars, as well. But that requires 1) reasonable income, 2) living below your means, 3) time, and 4) some ability to manage money.

Borrowing should be treated as a financial tool. Mortgages are a way of paying for something you can't afford in any reasonable time frame. And the interest rates are fairly low, so even if you could buy a house with cash, there's a good argument for taking on a mortgage instead. Because if you take the money you would have spent on the house and invest it, that should net you more money than just using the cash to buy it free and clear. But there's a certain freedom in owning something. And owning something doesn't mean you've forfeited the ability to take out a loan, because you can always use assets like a house as collateral (or stocks; that's how the really rich avoid taxes). People just should be aware that being in debt (leveraged is the same thing) is a risk. If inflation rises (fixed rate loans protect against this), or the asset's value tanks, or you lose a job or your investments aren't performing well so you can't afford the payments, then you can default and lose all you invested in the asset. It's the people who took out mortgages they could barely afford, or speculators who used leverage to buy real estate, who went bankrupt when the bubble popped in 2008. The people who owned their own homes, or speculators with minimal leverage, were fine.

FICO is important for people who don't have assets to borrow against.

[SoCalGardener]

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@Anonymalous wrote:

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@SoCalGardener wrote:

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@CreditInspired wrote:

I'm 69 yo and don't know a single person--relative, friend, coworker--who paid all cash for a house. Over my various careers, I've been a Realtor for  10 years, and again, not one all-cash buyer. Now, I know it happens, but it's not the majority.

So my question, and what I don't understand, is why is she solely invested in one man's theory so much so that she is crying. Why didn't she ask her relatives, her friends, her parents, her coworkers if they purchased their houses using all cash. 

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Just goes to show what a variety of people we have here! EVERYONE in my family paid cash for their houses--and all other real estate they bought. For example, my grandmother owned rental properties throughout Pasadena, both residential and commercial, in addition to her personal homes, and paid cash for every single one of them. When my husband and I got a mortgage to buy our house, that was a first in my family!

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My family tends to pay cash for houses and cars, as well. But that requires 1) reasonable income, 2) living below your means, 3) time, and 4) some ability to manage money.

Borrowing should be treated as a financial tool. Mortgages are a way of paying for something you can't afford in any reasonable time frame. And the interest rates are fairly low, so even if you could buy a house with cash, there's a good argument for taking on a mortgage instead. Because if you take the money you would have spent on the house and invest it, that should net you more money than just using the cash to buy it free and clear. But there's a certain freedom in owning something. And owning something doesn't mean you've forfeited the ability to take out a loan, because you can always use assets like a house as collateral (or stocks; that's how the really rich avoid taxes). People just should be aware that being in debt (leveraged is the same thing) is a risk. If inflation rises (fixed rate loans protect against this), or the asset's value tanks, or you lose a job or your investments aren't performing well so you can't afford the payments, then you can default and lose all you invested in the asset. It's the people who took out mortgages they could barely afford, or speculators who used leverage to buy real estate, who went bankrupt when the bubble popped in 2008. The people who owned their own homes, or speculators with minimal leverage, were fine.

FICO is important for people who don't have assets to borrow against.

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Indeed! I left home at 16, turning my back on my family's money; it was a calculated, conscious, informed decision that I have never regretted for a single moment--despite *horrible* financial problems, like being so broke we couldn't keep the lights on. My husband and I worked our butts off and were proud as can be when we bought our house--with a mortgage. I didn't care that no one else in my family had ever had a mortgage, *I* had managed this without my family's money and I was pleased as punch!

I think it's ridiculous to assume that everyone has the kind of money that allowed my family to pay cash for houses--and in very expensive SoCal, no less! I for one am very glad mortgages are available for those of us who need[ed] them. Now, looking at it from the other side, living in a house I own outright, I *love* the freedom of not owing a cent for my home. So I've seen both sides and appreciate both sides for what they are. I'm continually sent offers from known creditors, i.e., banks I already have a relationship with, like BofA and Discover, as well as places I've never done business with, offering home equity loans or HELOCs for 1.XX% interest. I shred them immediately. I've vowed that this house will never have a lien on it, so into the shredder they go! (But it is a nice reassurance that if I NEEDED money, I could easily get a million dollars or more just by signing some paperwork.)

[sarge12]

I think it is stupid to tell people not to take a mortgage for their house for the following reasons.

  A) You have to live somewhere, an paying rent is not the best option because

  B) If you pay rent, you are paying someone elses mortgage, and rent increases with inflation.

  C) The mortgage payment in a fixed mortgage remains the same, so while the initial payment amount may seem high as far as DTI, in 10 or 15 years it will be lower.

  D) Unlike any other debt, real estate tends to increase in value over time, creating equity.

  E) Home ownership allows you to improve your surroundings by investing in home improvements, and if renting, even if the landlord would allow you to add that 2 car garage you would like, it would increase his property value.

  F) All the advantages of a mortgage over renting leads me to believe that Ramsey or any other idiot advising such nonsense might recieve  a sizable percentage of income from renting houses or apartments.

  G) There is simply no other option available to the common man to own their own home. Having to pay rent prevents saving for a house.

  H) Almost every large business that is built, is built with borrowed money. That expense is spread out over time, reducing the profits to be  taxed, and building equity in the business. About the time one property is paid for, the business expands, adding or expanding properties.

   I) I, along with most, could never have paid cash for anything more than a shack. That might have been the choice of the Unabomber, but  most sane people prefer a decent house.

[sarge12]

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@Anonymous wrote:

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@Remedios wrote:

@Anonymous  please do not link to that channel.

You're on credit card forum assuring anti-credit fanatic increases views. 

If anyone wants in that cult, it's an easy search.  

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Understood

Thanks

Mark

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I 100% agree...I suspect that financial gurus like Dave Ramsey get a lot of extra income from those who are ignorant enough to follow his advice, by renting them a house. The average citizen could not find a job within walking distance of their family home, so taking on some debt for transportation to a job was a necessity. The average citizen could not find a place to live rent free while they saved for a house, so getting a mortgage is better than paying the rent, which pays their landlords mortgage. Truth is, a loan to buy a car and a house, are about the only debts that are 100% justified fiscally. If he were pushing an only aquiring debt for necessities philosophy, I might begrudgingly agree with him. Dave Ramsey is making a fortune off the misery of his followers who could not responsibly manage their debts. Debt is a necessary part of supporting ones family. Buying the latest greatest cell phone, or an 80 inch QLED 8K television is a want. I strongly suggest using long term debt only for needs, such as a house, car, or maybe even some furniture.

[creditfan]

I am curious and I wasted a few minutes of my time for it. Also, I noticed the "Like" counts is visible, but not the "Dislike".

Any good guess!!!

[increasingmyfico]

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@creditfan wrote:

I am curious and I wasted a few minutes of my time for it. Also, I noticed the "Like" counts is visible, but not the "Dislike".

Any good guess!!!

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Because it is a cult

[Adkins]

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@increasingmyfico wrote:

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@creditfan wrote:

I am curious and I wasted a few minutes of my time for it. Also, I noticed the "Like" counts is visible, but not the "Dislike".

Any good guess!!!

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Because it is a cult

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I'm not looking for the video because I'm not interested in watching, but if it's on YouTube, they changed YouTube so you can't see the "dislikes" anymore on the videos. 

[brk1971]

Even pretending (and it takes a lot of effort to pretend) that purchasing with cash is something viable for the masses and that lending should be avoided at all costs... Dave's stated opinion on credit scoring misses several non-loan impacts of not knowing, establishing, and cultivating a healthy FICO score... among them:

Auto insurance - Even if you paid cash for your car, you need insurance, and not every state allows you to post your own bond with cash in lieu of insurance coverage... Bad FICO = higher rates.

Utilities (including cell phone) - Bad FICO = leaving a deposit on account at every utility / every time you move cellular providers, and being limited to only certain types of plans with many carriers.

Renter evaluation - Bad FICO = higher deposit or even rejection as a potential tenant.

There are many many industries that use FICO modeling as a decision making tool.

[Anonymalous]

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@brk1971 wrote:

Even pretending (and it takes a lot of effort to pretend) that purchasing with cash is something viable for the masses and that lending should be avoided at all costs... Dave's stated opinion on credit scoring misses several non-loan impacts of not knowing, establishing, and cultivating a healthy FICO score... among them:

Auto insurance - Even if you paid cash for your car, you need insurance, and not every state allows you to post your own bond with cash in lieu of insurance coverage... Bad FICO = higher rates.

Utilities (including cell phone) - Bad FICO = leaving a deposit on account at every utility / every time you move cellular providers, and being limited to only certain types of plans with many carriers.

Renter evaluation - Bad FICO = higher deposit or even rejection as a potential tenant.

There are many many industries that use FICO modeling as a decision making tool.

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As someone who avoided credit for many years, most of those are manageable. Car insurance doesn't seem to have that big an impact. Not all utilities require a deposit, and when they do it's typically fairly small, and they usually give the deposit back in a year or so. It does limit your options when renting a place, but it's typically the big companies that are a stickler about it, and I prefer dealing with small companies or individuals, anyway. Note in these situations there may be a difference between no credit (I was an empty file/unscorable) and bad credit.

The biggest pains tend to be rental cars and hotels. I've managed fleets of vehicles, but couldn't rent one on my own. And hotels can be a hassle because they often require a signficant security deposit and it's not something they're used to dealing with, though that's still manageable.

The most important reason for most people to cultivate a healthy FICO score is a mortgage. Nothing else comes close.