My mission is to educate Gather readers on personal finance issues so that they can function better in their daily lives without fear in the world of finance. I have succeeded if at least one of you readers can be enlightened and change his/her financial life for the better.
This post will deal with:
It is strange to me that people are literally afraid of their Fair Isaac Corporation (FICO) score going down. They are so emotional about their FICO score that they are doing very silly things like paying someone to repair credit score and going to debt settlement companies to fix their finances. I am NOT suggesting that you should trash your FICO score (because the score is used for a number of financial dealings), but keep the score in perspective of what your financial goal is.
So what composes the FICO Credit Score? - To create the FICO credit score, Fair Isaac uses a few bits of information:
FICO Credit Score Components:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit
- 10% New Credit
- 10% Type of Credit
Look at the description of components – Do these indicate how wealthy or poor you are? Does it ask if you had just won the lottery or inherited ten million dollars?
FICO score is actually an “I LOVE DEBT” score, not how well you are doing financially. High score is obtained only if you keep borrowing more money frequently, and paying down the debt constantly.
As a statement of fact, a millionaire who does not borrow money has no FICO score. FICO score does not indicate the wealth or financial success of an individual.
HOW DUMB IS THAT?
Don’t worship at the alter of FICO Score. Ask yourself why you need a good FICO score. My reading is that you want good FICO score in order to keep on borrowing more and more and MORE!
Please comment on this post with your personal experiences and emotions.
Please read more about FICO score in Jeff's Editorial #94 (see the tag below). Also listen to Dave Ramsey on radio and watch his TV show.