Consumer Comeback Blog

Understanding The Dave Ramsey Credit Score Myth

radio and TV host Dave RamseyDave Ramsey is a popular radio and television talk show host and the author of several bestselling books. He has built his legacy on helping American families conquer the bondage of debts. He helps people with all aspects of personal finance and financial planning, but he is most famous for his Debt Snowball Method of helping people eliminate their debt. He believes that people should be debt free, and he believes it so strongly that he tells people that they do not even need a credit score. People often refer to this as the Dave Ramsey credit score myth. Myth or truth, it is controversial no matter which way you look at it.

A Credit Score Is A Debt Score

The only way to have a credit score is to have debt or have had some recently. A credit score represents your likelihood to repay debt based on your past performance of repaying debt. Young people just starting out who do not have a credit card or some other loan will not have a credit score. Those who go for a long time while being totally debt free will ironically see their scores continue to drop until they do not have enough information in their credit report to produce a credit score.

Dave Ramsey Has No Credit Score

Dave Ramsey often boasts on his daily radio show that he has no credit score. If you do not borrow money, you cannot have a credit report and subsequently cannot have a credit score produced from the report. And, without a credit file, Fair Isaac Corporation and other credit bureaus will not be able to assign a credit score to an individual. The same thing is true for people who are too young or just starting to borrow money. In order to have a credit score, you have to have a history of borrowing money. This feeds into the Dave Ramsey credit score myth. By his method of paying for everything with cash, you will not receive a credit score.

How To Buy A Home With No Credit Score

Many people will quickly point out that it will be next to impossible to buy a home without a credit history or a credit score for a lender to assign a borrower to a risk profile. This is one of the main sticking points of the Dave Ramsey credit score myth. But, Dave Ramsey refutes this point because credit scores are actually a relatively young invention. Credit scoring and giving individuals a credit score was invented in the 1950s by the Fair Isaac Corporation, originally a research firm, but now a credit scoring giant that produces its own proprietary credit score, the FICO Score, that is used by over 90% of all lenders as the definitive credit score. But, there was a time before credit scores, and a time before their popularity really took hold in the 1980s. Before the introduction of credit scores and credit reports, lenders used to use a practice called underwriting much like an insurance company does. Believe it or not, the practice is still in use today. It make take some digging, but borrowers without a credit score should be able to find a lender who still practices underwriting where they assess your credit worthiness based on other factors such as payment history for your utility bills, rent, and the like much like the bureaus do now.

Dave Ramsey adamantly believes that everyone should be completely debt free. He often tells people that it is a myth that they need a credit score in life to succeed. This is often called the Dave Ramsey credit score myth. It tends to be very controversial to many people who think they must maintain a credit report and credit score in order to survive and thrive in today’s economy.