Falling Off The Credit Grid May Be A Bad Idea
October 13, 2008 – 5:07 am
I’m a fan of Dave Ramsey, getting out of debt, and cutting up (some) credit cards. The main issue I have, however, with cutting up all of my credit cards is the affect it will have on my credit score.
I can hear the comments already…. “But Todd, your FICO score is an ‘I love debt score’. The only way to maintain a FICO score is to continue borrowing money. …”
All very true. I don’t plan on opening any new lines of credit in the future, and I’ve even frozen my credit reports to make requesting a new line of credit more painful. But I still want to maintain a good credit score. Why? Two reasons:
- potential employers may ask to pull my credit score in order. Although I could easily explain a zero credit score by conveying that my wife and I don’t carry any debt (once our debts are paid off), I’d rather not have to explain it.
- I’d rather not have my insurance premiums go through the roof.
Insurance companies still rely on credit scores to make decisions. Some use the scores to set the premiums. Others use the scores to make the decision to issue a policy or not. Either way I’d rather just keep one or two credit cards, use the cards occasionally, pay them off on time, and keep (or get) a good credit score.
I understand that by keeping a credit card I’m playing with a snake, and that eventually I may get bit. Lost payments, billing mistakes, and other issues frequently occur even with major credit card issuers. I’m willing to take that risk for the time being though, and I believe that these risks can be mitigated to some degree. Autobill pay and discipline come to mind. Rewards programs that pay me $100 to $200 a year also insulate me from a $100 or $200 problem each year. And it’s likely that by keeping a average credit score my insurance premiums will not be as high as they could be.
I wouldn’t recommend this approach to everyone, especially if you’re likely to fall back into credit card debt. I also understand why Dave Ramsey can’t recommend this plan to his listeners, because most of them would probably end up back in trouble. This is a possibility for anyone I suppose, but once again it’s a risk I’m willing to take for now. I can always change my mind later if my wife and I do get into trouble.
The following resources were valueable during my research for this post:
- an article from bankrate
- this article from carinsurance.com
- carinsurancerates.com
- A post from Debt Free
Image Credit: epidemy
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5 Responses to “Falling Off The Credit Grid May Be A Bad Idea”
Yeah, I love Dave Ramsey, but I’ve still got a credit card that we keep open and use (pretty infrequently). I am still very anti-debt, but we use the credit card every once in a while for big purchases, etc - but only when we can pay it off in cash almost immediately.
By
Pete (Who am I?) on Oct 13, 2008
I recently have had some credit problems. I liked my credit cards waaay too much. I think the best thing you can do to recover is to allow yourself enough time to straighten everything all out. Nothing happens overnight, especially fixing a credit score.
By
John (Who am I?) on Oct 13, 2008
I’m a huge fan of credit unions. I have my Visa from there and it’s such a relief to know that if I have issues, I can actually sit down face to face with a person in that department and get issues fixed.
I do keep that one card (and the card that my very first charge account from sears turned into) in order to keep my credit score high. As long as insurance is based on credit score, staying ‘on the grid’ is necessary (though despised).
By
karla (threadbndr) (Who am I?) on Oct 23, 2008