Tuesday, November 13, 2007

Do I need a FICO score?

Do I need a FICO score? Should I be worried about it? Is it important?

No you do not need a FICO score. At the same time maybe you should be worried about it. And it could be important.

What does that mean? Well it means that if you do not feel a FICO score is important then you don't need one. If you do not want to finance a car, house, or purchase then a FICO score means nothing to you.

However, you should be aware of potential repercussions of not having a score. Currently many potential employers will pull your credit reports during a routine background check to determine how trusthworthy you are with money. This might not be important in some fields more than others such as if you handle money like working at a bank or doing accounting for a company. This could lead the employer to determine if you are likely to embezzle money. Or if you are in research and development at a company, are you likely to sell secrets due to debt? Also some companies use it as a measure of responsibility. If you are a person who pays their debts on time, could imply that you will be responsible at meeting deadlines at work. I've talked with friends in Human Resources and these are a few of the reason they look at a person's credit report/score.

Another reason a FICO score could be important depends on your age. If you are 60, nearing retirement and not planning on financing another home then perhaps it doesn't matter. But if you are in your 20s, 30s, or 40s, and considering moving up in home and still need a mortgage, then it's definitely worth considering. Now people comment all the time about getting a manual underwriter.

However there are two things against manual underwriting, one only a few specific companies do it. So this limits your options about getting a mortgage. If like myself a company is paying for your purchase and you can choose from 3 banks, would you really pay closing costs at a manual underwriter or would you have taken the free closing costs from the company? Second, the rate from a manual underwriter even for the "best" rating is never as good as someone with stellar credit shopping around. Why? Because competition for the mortgage is less so the loan company doesn't need to give out the best rate. I've asked multiple brokers about this and they all say the same thing. It costs more to manually underwrite a loan so they can charge more.

Another reason a FICO score could be important is that it is currently being used for evaluating your risk in car insurance. It's only one factor but not having a score could cause higher rates. Also it determines in many states whether a deposit is necessary to start utilities. The companies want to know what sort of risk they are taking supplying you with cable, internet, or phone.

But do you really need a FICO score? No. Can you live happily without worrying about it? Yes. Just pay all your bills on time and a stellar score will naturally follow. Personally still being in my 20s I definitely am concerned about my score and I do plan on buying more homes. I also probably will move and get another relocation package. So I will have to use again the bank chosen by the company. And I'd rather get a great rate than stuck with a mediocre one because of principals of avoiding debt.


CT said...

I never understand the reasoning behind the thought that people who are behind on their bills would be more likely to lie, cheat, or steal from their employer. In white collar jobs those sorts of actions are usually done out of greed, not necessity. How many of the executives at Enron or WorldCom broke the law because they were behind on their electricity bill?

Living Almost Large said...

Definitely none. But I'm thinking more average accountants, people who are handling payroll, bank teller, etc. Maybe handling actual cash daily.

Anonymous said...

OK. Here goes: I do not worship at the altar of FICO.
FICO just scores how you handle debt. You have to have debt in order to have a FICO score.

My FICO score is ZERO.

But that is just me. Everyone is different. And LAL, you do an excellent job handling your finances and credit cards!

I enjoy your blog very, very much.

Admilson said...


I have seen your blog and found it very informative and updated also. Your blog is well maintained. I also have a financial blog of pr3. I try to maintain my blog regularly.

I want to make a review on your blog in my site. I will write 10 sentences about your blog and give you a link. In return you also make a post in your blog about my site.

If you are interested then please mail me on mail address I have given.

Waiting for your reply.


Eric said...

Excellent post! I actually know a guy (friend of a friend) who was denied a job due to his bad credit. Your FICO score is important and it shows more than how you handle debt. If you don't pay your cable bill, and let it go to collections, that can be reflected in your FICO score. That's how this guy got dinged.