An excerpt from Life After Bankruptcy by Seth Hanson
You might think I’m crazy by telling you to stop worshiping at the altar of your FICO score. But, let’s think about it. Debt is bad. Credit is bad. The only way to have a “favorable” FICO score is to carry debt. And the last thing you want to do is pile up debt. It might start out as just a few hundred dollars, then a few thousand, and before you know it, you’re back in major trouble.
Debt has not been your friend. It never will be.
FICO is really just a scam. In the calculation of your FICO score, debt history counts for about 35 percent of your score, current debt about 30 percent, and length of time in debt about 15 percent. The type of debt is the final 10 percent. FICO doesn’t take into account your employment situation, past or current income, debt-to-income, cash on hand, or even your net worth.
Consider, for example, a multi-millionaire with no debt, no credit cards, and no FICO score. The millionaire might be able to buy a whole car dealership but could not get a loan to buy a single car from a conventional lender who relies on FICO scores. Seems backwards, right?
FICO has convinced the powers-that-be that being employed and having savings or a net worth in the hundreds of thousands, even millions, has nothing to do with credit worthiness.
Ironically, now that your debts have been discharged, you have likely received dozens of credit offers from lenders who make it exceptionally easy for you to borrow money from them. Seems strange, doesn’t it?
These lenders are not your friends. They know very well that you were used to using credit before your bankruptcy and they’re betting you’ll do it again. They also know that you won’t be able to file bankruptcy again for several years, so they can create a new “debt slave” if they can get you to take the bait.
In addition to not taking out any new credit, I recommend that you freeze your credit with Experian, Transunion, and Equifax. There may be a small fee to do so, but it is well worth it. Freezing your credit will make it so no one can access your credit score unless you unfreeze it. That will provide a lot of protection to you. No one can open a credit card in your name and no lender can check your credit without your permission.
Let’s say you agree with me in principle that it is dangerous to get back into debt to “rebuild your credit.” However, suppose in several years you want to buy a house. I have two suggestions for you. First, try to use a lender that does not require or rely on FICO. One such lender is Churchill Mortgage. Churchill is endorsed by Dave Ramsey and has a very good reputation. Please note that I do not have any affiliation with Churchill Mortgage and that I am not endorsing them. You may find other lenders willing to work with you without relying on your FICO score. Second, consider asking your lender to use an alternate credit evaluation service such as eCredable.
eCredable is a credit-worthiness calculator that looks at how well and consistently you pay your bills. They look at bills like rent, insurance, cell phones, etc. Their formula calculates an “A” to “F” grade that you can give to your lenders or landlords. Please note that I am not endorsing or advertising eCredable, but just letting you know about it if you think it can help. Find out more at www.eCredable.com
You’ve got a very clear choice, and one that I think is obvious. Stay on top of things financially or slide back downhill, riding the FICO sled all the way down. Ask yourself which path will give you peace of mind?
For more information contact your Modesto bankruptcy attorney.
Categorized in: Debt