The AP is reporting that the federal government will start supervising the largest credit reporting firms. The stated goal is to help consumers get access to fair and affordable credit. Some commentators say that the government action is a positive move because many consumers are unsuccessful at getting credit reporting agencies to correct inaccurate information.
Although there may be some inaccurate information being reported, I agree with Dave Ramsey, who says that the best credit score to have is ZERO! It’s impossible to go bankrupt if you don’t have any debt, which is why Dave Ramsey encourages people to live on a cash basis and forget about using credit.
After doing over a thousand client interviews during an initial debt consultation, people have the mistaken idea that the credit report determines access to credit. It certainly is a factor, but the issue is “credit worthiness,” which requires good payment history AND good income. Sure, a lender is going to look at your credit history to see how you paid your debt, but a bigger factor is CASH. Cash savings for a down payment, and cash flow to be able to make the monthly payment.
As an example, you might be able to qualify for a car loan if you don’t have money for a down payment for the purchase of a car, but you will never qualify for a car loan if you don’t have enough income to make the car payment. Even if you have a credit score of 800, which is very high, you’re not going to get approved for a new loan unless you can show you can make the monthly payment. Your debt to income ratio is more important than your credit history. Here’s the key: “Cash is king in the world of credit.”
Living on a cash basis is easy to say, but hard to do. Here’s the easiest way to make that happen: get out of the car-payment-for-life club. The way to do that is to first pay off your vehicle and then continue to make vehicle payments – to your savings account rather than your car lender. The average car payment is $464 per month, which is $5568 per year!
Do that for the same number of months it took you to pay off your vehicle. Then take one-half of that cash and buy a USED Toyota Corolla, Toyota Camry or Honda Accord. Keep the other half of that cash in the bank account, and continue to make whatever would have been your vehicle payment to your savings account.
If you do that, then you’re not going to need credit to buy the car. If you keep that money in your savings account and then you experience one of life’s unexpected events happen, it won’t be a “credit crisis” because you have cash. Most times, people use credit to handle one of life’s unexpected events simply because they don’t have cash.
