Credit Scores
A busy week. Lots of driving. I put 35k miles minimum a year. I can spend 5 hours a day in a car more than once a week. Driving 90 minutes doesn’t even register. I’m amazed at the people who don’t have to do that. I listen to a lot of Dave Ramsey lately, podcasts. I agree and disagree with him in equal measures but I enjoy their perspectives. And now that Dave is trying to scale back, there is this Hunger Games type of thing happening on air as talent jockeys for a place at the Ramsey network broadcasting table. You can feel the tension in the air as these people try and find a place.
I don’t really agree with him that debt is bad and should be avoided. I do agree it’s dangerous, and you should never be cavalier about it, and since a lot of people aren't great with understanding basic finance, personal or business, yeah, it can get burdensome quickly. He dumbs down a lot of stuff past the point of reality - like, I’m not building a home building business to this size, with my business model, without a ton of debt (thank you Jeff Bank). But, within a few years of starting up, my debt was project based, per house based, and not operations based. Big difference. I did the Ramsey thing like 10 times. Load up on debt, and focus like the devil to pay it off.
I never realized, though it makes perfect sense, how dumb financially it is to buy a new car unless you have substantial net worth, especially now that cars cost $50k and people are financing them over 6-8 years (that’s crazy) and having $700 a month payments (that’s crazy). Anything with a motor he says is depreciating, and is the inverse of wealth building. Makes sense. Hard to make sense of a purchase that after 3 years is worth half of what you paid for it while you still owe 75% of what you paid for it. Keep doing that your whole life and it adds up to a lot more than that other wealth destroyer - Starbucks Coffee.
He’s also on the forefront like no one else I know of the student loan catastrophe for millions of families, and doesn’t hold back on the nonsensical nature of taking out $120k in loans for jobs that pay $60k.
I have to admit being guilty of this, and to be honest I’m about ashamed by it, of looking ‘down’ at people who don’t choose college as their route. I noticed it a ways back, when I was introducing some people and their husbands are young and successful in their own young way, but I skipped over them when introducing the dinner guests and what they did - granted, the dinner guests had 20 years and a lot of professional skill and experience behind them, but in the back of my mind, their careers were 2nd tier.
Which is really bad, coming from me, since I deal with everyday talent extremely hardworking millionaires every day of my life who have never been to college - my masons, framers, plumbers, well drillers, hvac people, etc… Literally have no use for a pointless college degree.
And some tiktoks hit it home for me - instead of wasting 4 years, coming out with a degree of debatable worth, and typically a lot of debt, only to hope for a job that will pay you $60k start and then a struggle to move up as your colleagues vie for the same openings - instead, you start working at 18, you get paid as you train half the time, you are in industries that pay well, and at 24, 25, 28 you can be making 6 figures, and have your choice of jobs. Getting away from college-is-for-everyone is critical to America’s future - college is too expensive, and of debatable worth for a lot of people. Even though I’m saying this, the idea that trades are a good route is a no-brainer, but would I be happy if my daughter (if I had one) brought home a successful car mechanic or plumber or Hvac professional? I know I wouldn’t, and that’s on me.
But, lets be honest too - education, learned wisely and affordably, opens ones mind and creates a web of curiosity, compassion and understanding that going to work at 18 with a bunch of high school grads isn’t going to provide, be it about religion, gender roles, aspirations for your children, etc… So, like most things as an adult - it’s complicated.
But the point of today’s blog is none of the above - although that’s not true, it’s a Ramsey rant offshoot. But first, my day -
Got up, dressed for my road bike, biked 10 miles down and 10 miles back on Rt 206 between Milford and Stroudburg along the Delaware Water Gap - 20 miles in 1 hr 30 minutes, then napped, then read a book which I’m loving and now blogging. Then pool. Tomorrow we have the big event at Ashokan Acres.
Credit Scores - there is literally not a person who should have their credit score pinned at the highest possible level other than me- I’ve used debt responsibly for 25 years. Literally hundreds of millions of dollars borrowed and paid back, on time, ahead of time, in full. Car loans, truck loans, house loans, business loans, personal loans, credit cards galore. Never late, never carry a balance on a credit card, pay shit off and pay it off fast. The fICO companies literally have thousands of months of credit card history to see exactly what I do - run em up, and pay em off, the same month.
And yet, depending on the credit agency, I can see my credit score dip in the 600’s if I happen to pay my $125k lumber bill with a credit card, or borrow $100k for a new truck. It doesn’t matter that there is $400k in cash, no mortgages, big fat balances sheets with no liabilities, gigantic earned income - all they see (or want to see) is “OMG you are using 55% of your available balance on one of your cards” - never mind that that amount x50 is sitting in a bank account.
The only reason I can see that credit companies want to use this infantile way to evaluate risk, this one size fits all regardless of your net worth or yearly earned income, is because it helps keeps rates elevated for a large pool of borrowers who should be at the top level of FICO score. I mean, if I’ve been using 5 credit cards for 20 years, heavily, - like 1200 months of on time payments, each and every month before interest kicks in, but I’m being put into the same formula as the guy with a mortgage, 3 kids, nothing in the bank, a car loan and a $100k household income, -of course I’m getting screwed when I go to borrow - so for this wealthy or somewhat wealthy slice of people who literally have zero chance of defaulting on anything struggling to keep a 700 or 800 score, it’s just a scam. And I guess like everything else in America, it’s a scam to fleece the consumer, with collusion among rating agencies, banks, gov’t etc…, baked so deeply into the fabric of our life we don’t even notice it. It's like measuring the danger of driving a race car without examining the experience of the driver, or evaluating the probability of hitting a major league fastball without taking into account the skill of the hitter, or in my case, judging the likelihood of attracting the female favor without knowing the extent of my game.
Or maybe we do notice it - and that explains the resilient attraction to a burn it all down candidate like Don Trump.
I mean, it should be pretty simple, and transparent - have liquid assets that are 3x your debt exposure and a predetermined length of unblemished payments, and you get a perfect credit rating. It could be anything, but it should transparent, it should be objective, it should be rooted in the size of your shovel (income) as well as the size your hole (debt). Without the income side, without the asset size, credit scores are a complete scam and an American way of life, to the detriment of the average American. With that, I’m with Ramsey all the way.