August 12th, 2016 5:00 AM by Jackie A. Graves
pretty good credit—right now my score is close to 800. Awesome, right? Sure,
except that awesome credit has actually been pretty useless, even when I
recently bought a home. Don’t get me wrong, bad credit
has a big impact on your finances. It’s strange, then, that
excellent credit doesn’t really matter.
The whole idea of credit scores
is flawed to begin with. We tell people there’s this single number to judge
their financial worthiness. That’s a scary prospect. In reality, there are actually many credit
scores, not just one. Banks use theirown
scoring system to approve or deny your applications, for
example. FICO is probably the king of credit scores, and even they provide a few different models, and
it’s up to your lender to decide which model they use.
NerdWallet notes that the average FICO score is 695, so most people have
good credit, but 22% of people also have scores below 600. Now, I’m not
suggesting credit doesn’t matter at all. It sure as hell matters when it’s bad.
We’ve listed all the
ways bad credit can make your life difficult, but here’s a brief
Common assumption is that bad
credit just means you can’t get a good rate on a mortgage or a car loan, and
the solution is to just not buy a house or a car—rent and take public
transportation. Fine, let’s say that’s fair enough. But bill providers are
still allowed to charge you a fee for having shitty credit, and when you try to
rent an apartment or even get a job in some cases, your poor credit follows you
around like a bad smell.
If you have excellent credit,
it seems the opposite should be true: you get a discount on your bills, you’re
automatically approved for your dream apartment, and so on. It doesn’t work
that way, though.
Alright, maybe I’m being a
little cynical. Excellent credit has some perks. For example, I can easily get
approved for huge lines of credit. On the other hand, I never use those lines
of credit because I pay my debt in full every month, which is why I have good
credit to begin with. If I were to max out my credit lines, my credit score
would drop, and before you know it, I’d have to deal with all the drawbacks of having
poor credit. So I don’t exactly jump up and down when my credit card company
congratulates me for expanding my credit limit.
But a high credit limit
is good, you
might say. If you have a high limit and you don’t
use it, your credit will
true, but that logic is a little absurd. I get a higher limit to improve my
credit...for what? An even higher limit I won’t use? And if I do use that, my score drops, making the
whole perk pointless. It’s like having a phone that only calls itself and also
stops working if you actually use it.
If you have good credit, you’re
probably also more likely to get approved for credit cards with low interest
rates. Again, that doesn’t really matter if you’re not in debt.
My rewards credit cards are
pretty good, and perhaps that’s one perk of having excellent credit, but as MoneyUnder30 points out, you have a good chance
of being approved for most credit cards as long as your score is at least 700.
You don’t need an excellent score. You just need a score that’s good enough.
For a while, I was really
excited to have awesome credit because I knew it would finally pay off when I applied for a mortgage.
Only it didn’t.
First, the lender told us
they’d have to go with my fiance’s score, since we were buying the house
together and his name would be on the loan, too.
“His score is like, 100 points
lower than mine, though. You don’t consider mine at all?” I asked.
“No, not really,” our lender
We tried to get around this
with my name only on the loan. Sure, we were approved for a smaller amount
since we only had one income on the application, but that would be fine if it
dropped the rate substantially. It didn’t, though. Our rate together with
mediocre credit: 4.8%. The rate on my own with excellent credit: 4.2%.
Eventually, we decided to go with an FHA loan which had a much lower rate (3.3%) that was the same
whether we applied together or separately. Yes, you have to pay a premium with
your FHA loan, but we crunched the numbers, and it was still cheaper,
considering the interest rate that even my excellent credit could nab.
In his own post questioning credit scores,
personal finance writer (and part-time landlord) Sam Dogen says that a clean
credit report is only one of several factors he considers when approving a
tenant. There’s also their employment record, references, and the ability to
cover several months’ worth of rent in case they lose their job. Landlords weed
out applicants with bad credit, but that doesn’t mean excellent credit is going
to speak much to your chances. It’s hard to quantify this, because it’s totally
up to the landlord’s discretion, but chances are, an 800 score isn’t going to
help you beat out an applicant who earns twice as much as you, even if their
score is only 740.
Dogen also pointed out that
when he went to lease a Honda Fit, the dealer really didn’t care what his score
$19,025 pre-tax, the Honda Fit is at such a low price point, they are used to
plenty of people with mediocre credit scores buying such a car. The same goes
for the Honda Civic. Most people making the median household income of $52,000
a year should be able to swing a $235 a month car payment.
When my fiance leased his
C-Max, we found the same thing. When haggling with the dealership, they said
his 700 credit score might work against him with the financing. So we called
them out and said we’d put my name on it instead and use my 800 score. They
relented and admitted that the rate would actually probably be the same.
Bottom line: excellent credit
has served zero purpose in my life so far.
Most of us have learned that
going above and beyond pays off. This doesn’t seem to apply in the world of
credit: you don’t need to excel, you just need to be good enough. Otherwise,
you’re wasting your time. Here’s how Forbes contributor Adam Levin puts it:
idea of “gaming” your already-excellent credit score to drive it up is not
going to benefit you in any real substantive way – there’s little or no
difference between the interest rates or credit terms offered to people with an
800 and those offered to people with the elusive 850. So gaming it doesn’t help
anything but your ego.
Dogen agrees, saying that after dealing with various
mortgage officers over the years, he’s learned that once your score is over
740, “it doesn’t matter how much higher your credit score is. You will always
be offered the best borrowing terms.”
As long as your credit isn’t
terrible, you’re going to get the same level of perks at “good” as you will at
Of course you want good credit,
but not because it opens the door to some magic financial world, but because
having bad credit can be a pain. Excellent credit might get you a lower mortgage rate, but bad
credit will definitely get you a terrible rate. Excellent
credit might help ensure your rental application
doesn’t get tossed out, but bad credit will ensure it definitely does get
In other words, when it comes
to credit, there’s little point in striving for excellence. You just need to strive for “not bad.”
By Kristin Wong - To view the
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