Yes, you read that correctly. My credit score is equal to exactly nothing, and it’s one of the best things about my life! Now, obviously many people would think, “You have a credit score of zero? How is that a good thing?” Well, let me tell you.

Your credit score is not a good indicator of how good you are with money. Your credit score goes up whenever you pay your credit card bill and/or loan payments on time.

“But Stephen,” you say, “that does show how good I am with money!” Hold on, let me finish.

Your credit score goes up when you pay on time, and it goes down when you pay late, pay too little, or default on your loans.

However, your credit score will also never go up if you never take out a loan or use a credit card, which is why my credit score is at zero. I don’t have a credit card, and I’ve never taken out a loan. I do, however, have more money than the average college student. By comparison to most people in my situation, I probably have a lot more, but it’s not because I inherited much (maybe about $700-850), it’s because I’ve worked since my senior year of high school and haven’t spent it all on needless crap.

“Stephen,” you begin to say “are you suggesting that I squander away my money on frivolous pleasures?” No, no I’m not; that’s not what this article is about, remember. I’m going to explain why credit scores mean absolutely nothing when it comes to how good you are with money.

Now, the only way to get your credit score up is to take out a loan, or to buy things on credit. Effectively, what this means is that you have to end up paying more for items just to bump your credit score up. For example, if you want a couch that costs $600, you might buy it on your credit card that has a 15% interest rate. Once you’re done paying for it, it will have cost you at least $690 (excluding other fees), a whole $100 dollars more than if you had paid for it up front!

Or if you finish paying on a mortgage, your credit score will probably be very high. That is until you stop buying things on credit and taking out loans- that’s when your credit score takes a hit. So think about it like this: the bank/credit card company lends you money so that you can pay them back with interest in return for a good credit score. But, should you decide to stop living on credit and taking out loans, your credit score falls dramatically…why?

I’ll tell you why- it’s because your credit score is not a good indicator of how good/bad you are with money, it is an indicator of how often and how well you do business with the bank. Essentially, your credit score only indicates how safe of an investment you are. If you have a good credit score, you’re more likely to get a loan/credit card because you have proven yourself to be a safe investment for the banks; they will lend you money because they can count on making more money off of you.

I went to an apartment complex the other day to enquire about what they had to offer for myself and a friend of mine. The lady showed me diagrams of two bedroom apartments and went through the details of each. She also mentioned that the deposit would be around $30-40. Okay, that’s reasonable, until she said that they determine how much your deposit is will be based on your credit score.

Well, like I said before, my credit score rests squarely at zero, and it’s going to stay there for a while. The same is true with my friend- we both are able to pay for our college expenses out of pocket, so we have no need to take out student loans, nor do we have any need for credit cards. So I explained the situation to the lady, and I asked her what they would do in that case. She said they can work with our situation, but our deposit will be around $300-400.

So, would it be a good idea to open up a credit card account in order to raise my credit score and get a lower deposit requirement? Absolutely not!

When you stop and think about it, it would cost significantly more for me to open up a credit card account and pay on all of my bills with interest than if I just saved up for the higher deposit in the first place. And I’m not blaming the apartment provider for wanting to charge me more. After all, I have a score of zero, which either means that I never pay back on my loans, or I’ve never had any debt to pay off in the first place (mine is, of course, the latter). The point is that my credit score indicates that I’m a risky investment because I’ve never been invested in before, and I can’t blame them for wanting to get their money’s worth. After all, they are a business too.

But, my problem lies in the fact that many people bend over backwards trying to keep their credit score high. In the end, you’re only borrowing and paying back more money for a number that tells the banks that you’re a safe investment for them.

The important thing to remember is that the banks are not your friend. The bank tellers might be your friend, I have plenty of friends who work at banks. But, as an entity, the banks do not care about you as a person, they only care about if they can make money off of you.

With all of this said, there are two types of credit that I would advocate people use if necessary.

First, pay for anything you can afford up front so that you’re not always in debt to everyone. Once you have exhausted all other means of financial options, then you can take out student loans to pay for school, and/or a mortgage to pay off a house. The reason being is that the end result of both of these personal investments tends to make you more money in the long run. A college degree will get you a higher paying job, and a paid-off house is a wonderful asset to have!

A car is going to depreciate in value as you drive it, so car loans make you pay more for a car than what it’ll be worth once you’re done paying it off. Plus, a lot of times if you get in a wreck, you’re stuck paying on a car you don’t have anymore. Simplicity is bliss: pay for a car up front. If you can’t afford that brand new car you want, that’s okay; pay for a good used car until you save up enough money to buy a brand new car outright- because you’re getting screwed once you sign those lease papers.

So stop trying to break the bank paying the bank! You can live without constant debt, and honestly, you’ll breathe easier and it will be more affordable to do so.

Wisdom of the Week: It boils down to this- live on less than you make, build up your bank accounts, and never pay more for something you can get cheaper.