We’re still going through Dave Ramsey’s Financial Peace University program. Last night, we had the “Credit Sharks in Suits” lesson. On the plus side, this is one of the few lessons that I agreed with him on most things. However, there was one big place where I disagreed — his statement that a FICO Score is an “I Love Debt” score, and that it was not necessary to work to have good credit.

His premise is that to even have a FICO score, you need to be using your credit. This is true. However, in my opinion this does *NOT* translate directly to loving debt. For those of you who are unfamiliar with how FICO works, here is a forum (which is a bit dated, but is the most current description I can find) with a post which describes the FICO scoring system:

http://forums.kiplinger.com/showthread.php?t=9424

Basically, to have a good FICO score, you need to have credit opened in multiple categories, and be actively using it. Having a credit card that you pay off every month will be enough to get you a FICO score. It won’t be great (since you don’t have installment debt, etc), but it will be “good enough”. If you have a credit card that gets paid off every month, plus a mortgage or car loan that is being payed as agreed, you will have a pretty decent FICO score. Really, Dave’s presentation of this portion was relatively accurate, although I still don’t agree with the “I love debt” part — I’d refer to it as the “I use credit, and use it responsibly” score. If you have many credit cards that are all maxed out, or late payments, your FICO score is going to suck.

Now, for his point that you don’t need a FICO score to be able to get along in life. It amuses me that he aid this, and then went on to say how he wouldn’t be able to go rent an apartment for $500/mo, even though he could pay for the entire building in cash. This could be a pretty big problem for those of you who don’t have enough cash to purchase the building! Sure, you may be able to find an apartment complex that will work with you, but you may have to put a couple month’s rent up front, and may be limited on where you can go. And if you go to get a mortgage, you’re going to be in trouble — most of the lenders I talked to required a base FICO score before they would even talk to you. Sure, you could use one of the lenders that he offers that can go through a different process to certify you — but what is the real harm of having a single credit card (or charge card) that you pay off every month, which would make it easy for you to work in the standard lending industry?

I’d love to hear what you think!