Ignore your credit score

I am continually amazed at the number of "financial experts" out there who all talk about postponing debt repayments as a means of building wealth. Anyone familiar with accounting and the definition of wealth knows that the fastest way to build wealth is to shed liabilities. After all your total net worth, or total wealth, is assets minus liabilities.

But what amazes me even more with regard to debt repayment, when they actually advocate putting every spare dollar with which you’re comfortable toward it, is the seemingly continual focus on the credit score. It’s as if they focus on paying down debt with the intent of taking out more. No! The idea should be paying down debt with the intent of ridding yourself of it for as long as possible.

I don’t know my credit score. I have no clue as to what 3-digit number has been assigned to my alleged credit worthiness. Nor do I really care at this point. I’m not trying to to get a new credit card or a loan, so I have no need to worry about it. And truthfully I’ve never paid attention to my credit score.

To those who are merely trying to get out of debt, your credit score is worthless and you should not be focusing on it at all. It’s also been my observation that for short-term or revolving liabilities, it isn’t the credit score that determines your credit worthiness, but the contents of the credit report. I attempted to apply for new credit last year as a way of maneuvering debt into better positions to pay it off, and whenever I’ve been denied, it has been due solely to items on my credit report, not because my credit score has not been within a particular range or above some minimum limit.

My credit report is far from clean. And in current times, I’m sure it’s the same for a lot of middle-class and lower-class people. Back in 2008 I was unemployed for a considerable amount of time, debts fell behind and into collections, and now things are better and my wife and I are digging ourselves out of our financial hole however we can. We’ve shed a lot of liabilities over the last 4+ years as a result, starting out at over $40 thousand in total liabilities when the exercise first began.

And the biggest change allowing us to do this is simply not adding to our liabilities where possible. This meant not using our credit cards with the exception of only two or three recurring charges that we pay off every month. Any new liabilities we do take on we plan to pay off in a short time frame.

It was one hell of a change, too.

Prior to being unemployed we frequently used our credit cards, lived beyond our means. Like a lot of households then and, unfortunately, also now, we ran up a lot of debt as a result. Getting laid off and seeing all of that fall into collections showed us the true magnitude of that debt and the hole into which we fell. While I knew of all of the accounts and their balances, including the loans we had along with the credit cards, I guess until it all fell into our laps we weren’t really conscious of it.

And that was the problem. We had lost sight of it, because we naively thought that it wouldn’t become a problem. In the back of my mind I knew it to be an issue, but it wasn’t one that had a lot of priority. And though I had a spreadsheet showing the numbers, I didn’t have the right kind of focus on it because I was, again, naïve about it.

But to think your credit score will show you the true magnitude of your debts is even more naïve. And if all you’re doing is focusing on your credit score, you’re losing sight of what truly matters in your financial picture.

A spreadsheet can help you gain some perspective. When you lay out all of your debts on a spreadsheet, including to whom the debt is owed and the amount that is owed, and use the sum function to add it all up, you see a picture more striking than any yet conceived. Trust me, it was to me.

When I saw that my total debt load in 2009 was about the same as my total annual net income from my previous job (the number after taxes and deduction), it was one hell of a shock. Now most of that debt was initially my car and my student loan, both of which easily made up 2/3 of that total number, but it wasn’t any less of a shock to see the actual amount.

And seeing the total amount of all your debts, secured and unsecured, could be enough to shock you into the admission that you have a financial problem and get you planning to dig out of that hole.

Because digging out of debt requires waking up. You need to ignore your credit score and completely let go of the idea of getting more credit or loans. The only reason to be getting more credit or more loans is to shift liabilities into a better position to pay them off rather than merely adding to your "debt ceiling". In other words, you open one account, shift the debt of an existing account and then close the existing account.

"Oh, but that’s not good for my credit score," I hear you say, as it’s something you’ve read in the numerous articles about getting out of debt. And to that I say "Oh fucking well". Again I have no clue as to what my credit score currently is because I don’t care. At this point, I can’t care.

And if you’re seriously trying to dig yourself out of debt, you cannot care about your credit score either.