Zero Fico Score

[RobertEG]

Zero FICO does not mean zero debt. One who preaches this just does not understand FICO.  FICO may use debt as a factor, but it is not primarily a debt evaluation.  It is a risk score.

A zero FICO means you have no current credit history.  Simply open and pay an account for six months, and you have a FICO, with no debt at all unless you choose to take it on.

Use of a credit card is not synonimous with increased debt, be it a "charge" or "credit" card."

Keeping blances low and paying the min. each month, on time, can be managed in a way that incurs no interest, while establishing the ability to have and use revolving debt in a responsible manner. 

If one is a "pay in cash" person, that is great, and that person will have no need for or concern with their FICO score, for it will never matter. But they also have no payment  history.

If one then seeks to enter the revolving credit market, they are asking for the exdtension of credit, and FICO evlauates risk on repayment of credit, and not on prior payment with cash.  Would one who has had a "i paid in cash my whole life" mentality be more or less apt to miss payments on a revolving account in the future than one who has shown a history of paying revolving credit for many, many years?  FICO simply says that, with no history to answer this question, the risk may be higher.

[Anonymous]

I am no expert on DR... However, I think that what DR preaches is worthwhile. He advocates responsible spending and no debt of any kind.

If you want to have the ability to borrow lots of money, then you need a high FICO score.

If you want to be debt free, then that is another story and I think that is more of where DR is coming from.

If you save money for purchases (large or small) and pay with cash then how can you have a FICO score. I think by DR advocating a zero credit score he is saying that we should not spend what is not ours. Spend what you have now, not what you will earn in the future.

[KingAdrock]

Having a high FICO score and being debt free are not in any way mutually exclusive. If you have lots of debt (high utilization) this hurts your FICO score. FICO favors people with lots of open credit but little or no debt.

[Anonymous]

Dave Ramsey advocates using a debit card. He does not have any current debt so there is no data for FICO to gather. He does not recommend credit cards b/c most people do not have the discipline it takes to behave with them. I have been paying for things on a cash basis now for ten years, except my house and it is on a fixed rate. I will have it paid off in slightly under seven years and I will be debt free also.

Dave's methods DO work and I can finally see where he is coming from. I will NEVER use credit in the same way ever again!.

[MidnightVoice]

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PeacefulKancer wrote:

I am no expert on DR... However, I think that what DR preaches is worthwhile. He advocates responsible spending and no debt of any kind.

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That is true - but he also advocates fiscally irresponsible financial practices that waste money.  I  have more money because I use credit responsibly than I would if I followed his system, and more free insurance etc.

[Anonymous]

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@MidnightVoice wrote:

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@Anonymous wrote:

I am no expert on DR... However, I think that what DR preaches is worthwhile. He advocates responsible spending and no debt of any kind.

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That is true - but he also advocates fiscally irresponsible financial practices that waste money. I have more money because I use credit responsibly than I would if I followed his system, and more free insurance etc.

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Well, if his target market is people who are not responsible enough to manage their credit properly (as several posters claim), then apparently they are not responsible enough to use the credit system to their advantage either.

Irresponsible people are going to lose no matter how they cut the cake, because either they can't control themselves and get into a lot of debt - or - they avoid the entire credit world and thus avoid the benefits of credit. Irresponsible people will lose money no matter what. It's the price of being irresponsible.

What people fail to understand is that there is good debt and there is bad debt. Basically, bad debt is debt that acquires depreciating assets. Good debt is something that either increases in value or increases your cashflow. An example of good debt would be buying a business on credit that produces a profit to you (even with the interest). In this case the extension of credit increases your wealth. On the other hand, bad debt would be going to the store and buying a bunch of things and taking 3 years to pay it off at 18% interest.

Smart people use credit wisely, either for good debt or for purchases that would not be possible without a loan (i.e. a home mortgage vs. waiting 10 years to save up the cash to buy a home).

Where it gets silly is when responsible people start following advise for irresponsible people, thinking that they are being responsible by doing so. In reality, they are leaving money on the table by not using the system in their favor.

Message Edited by WisTex on 04-24-2008 07:57 AM

[MidnightVoice]

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WisTex wrote:


Well, if his target market is people who are not responsible enough to manage their credit properly (as several posters claim), then apparently they are not responsible enough to use the credit system to their advantage either.

Irresponsible people are going to lose no matter how they cut the cake, because either they can't control themselves and get into a lot of debt - or - they avoid the entire credit world and thus avoid the benefits of credit. Irresponsible people will lose money no matter what. It's the price of being irresponsible.

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Spot on

[Anonymous]

Let me give you guys some scenarios:

Irresponsible person with credit:

1. Maxes out credit cards, gets in trouble, manages credit poorly.
2. Tries to get a mortgage and if approved, gets a high rate.

Person who avoids credit until last minute:

1. Has no credit history at all because paid cash with everything.
2. Tries to get a mortgage and if approved, gets a high rate.

Smart person who is responsible with credit:

1. Established a few credit accounts, and pays them off on time to establish a credit history, thereby getting a good FICO score.
2. Tries to get a mortgage and is approved, with a low rate.

Notice that the first two scenario's results are the same.

So, if you think you are going to need credit some day (such as for a home loan), then a smart person would establish credit by using credit responsibly before he actually needs the credit for the home, which then secures him the best rates.

[KingAdrock]

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@Anonymous wrote:

Dave Ramsey advocates using a debit card. He does not have any current debt so there is no data for FICO to gather. He does not recommend credit cards b/c most people do not have the discipline it takes to behave with them.

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There are people who have serious problems keeping their finances in control, and they may be better off getting rid of their credit cards. Just as there are people with gambling addictions who should stay well away from casinos.

But do you really think MOST people are this way? While likely some of Ramsey's audience have serious problems, most are simply ignorant about credit. These people are being done a disservice being told fallacies such as credit & debt are one and the same.

[bluechase]

I am new here. Wow I have learned alot about Dave Ramsey from you guys and I am an avid listener to his program. Judging from  the tens of thousands of people who attend Dave Ramsey events most people do have a problem with credit and how to reap the benfits you all talk about. However one thing I have learned in my short time on earth is the best laid plans do get off track.That's the majority of  his audience. When you listen to his show you will prob think what a bonehead. But you will quickly learn there are a lot of boneheads. He has an answer for a person  who pays their credit card off every month then looses their job. Or who has no savings buys a car and wrecks it and now they are upside down with no Gap Insurance.  Dave Ramsey does try to give people a comprehensive plan to cope with financial issues.  And his plans works 100% of the time for a 100% of people whether you are responsible or irresponsible. (He says if you dont belive him you can always go back in debt) What you are saying  only works if you are already responsible and everything goes according to your plan - no illnesses, car repairs, emergencies etc. I understand the part about  leaving your money in the bank to collect interest and all that but the vast majority of people live paycheck to paycheck and there aint a whole lot to leave in the bank. What goes in the bank goes straight out of the bank. Did you forget that the #1 reason people go into debt is because they dont have the money its not becasue they have the money and rather use the plastic? Dont people just want to postpone the transaction? It seems like if the majority of people were really as responsible as you all say we wouldnt have a mortgage issue( however small) and there wouldnt be so many credit card companies out there. Credit is big business, someone is making money and it is not the consumer and his interest bearing account. Credit card companies are in it for what benfits them. How do they gain by  giving you free miles, insurance, and getting nothing in return.  Again, I am new.