
Is the personal finance guru correct in this controversial stance?
Well-known financial personality Dave Ramsey provides lots of advice to his many followers. Some of it is good advice, like his suggestions regarding repaying debt and saving up an emergency fund. However, Ramsey is adamant about one particular issue, and his advice on it is very controversial.
Ramsey believes that you should swear off using credit entirely and let your credit score go extinct. This is very different from the advice that most finance experts give, which is to take steps to improve your credit score.
So, is Ramsey right that you shouldn’t worry about your credit record, or is this advice you simply shouldn’t listen to?
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Ramsey’s reasoning
Ramsey’s position is that a credit score is an “I love debt score,” because it’s calculated based on your payment history, amount owed, length of credit, and credit mix, among other things.
He argues that you’re better off not using debt at all, which would leave you without a credit history necessary to formulate your score, and he claims you’ll be better off if you do this because a “‘superior’ score in no way, shape or form indicates you are good at handling money.”
Here’s the problem with Ramsey’s advice
The issue is, as Ramsey admits, most creditors do view your credit score as a proxy for your ability to manage money. And creditors aren’t the only ones who do this. Your credit report and score will be checked by a host of people and companies you are interested in doing business with, including:
- Landlords
- Car rental companies
- Utility companies
- Potential employers
- Cellphone companies
- Insurance companies
If you do not have a credit score because you’ve sworn off borrowing entirely as Ramsey suggests, …….