There has been a lot of debate on the FICO score recently so I decided to record a video describing what the FICO score is and isn’t:
What the FICO score is:
- A score that banks and other lending institutions use to determine your credit risk-Most creditors use the FICO to determine whether you are a good risk to loan money to.
- A way to get better interest rates on loans-The worse your score, the higher your interest rate will be on any mortgages, car loans, or credit cards you take out.
- A history of how well you have paid back debt in the past-The FICO score looks at your history of making payments, among other factors, and creates a three digit number that you are judged on.
What the FICO score isn’t:
- The only way to determine credit worthiness–eCredable and other companies are out there that can help you establish creditworthiness to get a mortgage without going into other debt
- A way to pay off your debt-Having a high score doesn’t impact your ability at all to pay off your debt. Ultimately, if you want to become debt free you have to pay it back yourself. No credit score can help you do that.
- An indicator of how well you are doing financially-The FICO score is all based on debt. It doesn’t tell you how much money you saved or what your income is. I’ve coached many people who have “great FICO scores” but are having trouble paying their bills each month.
As you can tell, I’m not a real big fan of the FICO score. I’d rather you focus your time and energy on getting and staying out of debt, saving money, and building wealth. The banks have done a great job convincing us that we can’t succeed with money unless we have a great FICO score. That’s total nonsense. So please, don’t be defined by your silly FICO score. You are more valuable than a three digit number.