I saw a commercial a few days ago that presented the premise that “thousands of Canadians don’t know their credit score!” as being a very very bad thing for them.
So, why, exactly? I mean, I’m sitting in front of my computer looking at the debt I’m battling (which is essentially a pseudo-mortgage that will be paid in full within months but more on that soon) before I can begin to meaningfully save.
Of course there is a use for credit. It’s a crucial part of the economy. But what would the consequences be for you if you had never used credit, had a bunch of cash and assets stashed, and then for whatever reason that is very hard for me to conceive of besides (MAYBE and with CAREFULLY calculated and employed STRATEGIES) a mortgage, you need to access credit finally? Well, considering who the banks have a history of lending to in recent decades, I don’t think they’re going to turn their nose up to you.
On the other hand, if the billions of dollars that have been spent on marketing banking products such as lines of credit, credit cards and mortgages to us, actually work and lead to more people signing up for credit than not, who wins? Well, at 20%* interest or more, the banks, obviously. And I wouldn’t even be thinking of my credit score if I hadn’t seen the commercial!
Well, here’s my marketing pitch: you don’t need it! You. Do. Not. Need. Debt. And therefore you don’t need to know your credit score. Yes, credit can be used strategically and carefully but in reality there is no need for it. And, ironically, not having any debt history probably is the best thing for you in the end if you ever do need to use credit (have I used the words carefully and strategically yet?). And, as an added bonus, if one had never used credit to this point, it would be much more likely that they would not have been one of the 143 million people exposed in the Equifax hack that is making news today.
The truth is you do know your credit score. You know your if you have a history of paying bills on time or not. Or interest payments on loans. Or even rent. You know if you’re living within your means and sustaining yourself with your earnings or if you are slipping further and further behind paying for things you don’t need and can’t afford with debt. And you usually know if you deserve the credit you’re applying for or not. I’ve recently been trying to increase the limit on one of my Lines of Credit to pay off my remaining credit card debt and save on interest. I think this is a wise strategy in this case, but to be in the position of applying for credit to pay for credit is not the stuff early retirements are made of, let me be clear about that.
So keep your wits about you or perhaps just avoid TV altogether (I don’t have one, but spend a few nights here and there in hotels in transit to and from work). These marketing campaigns are carefully designed to stimulate parts of your psyche that you may not always be fully conscious or mindful of to get you to consider the ‘social norm’ they’re presenting to you. For every dollar of income you put towards debt you can lose a percentage (say 4% and rising for a mortgage and 20% or higher to a credit card) of every dollar whereas if you can put that money aside and start to invest it carefully and strategically with a focus on the long-term, you can fairly reliably gain 7%, a total difference of (11%-27%) on every one of your dollars, not to mention the compounding effects of those gains.
That’s your earlier retirement, right there. That’s your freedom. Right. There.
*Presumed average annual interest rate on a standard credit card.