I’m a Financial Expert: Why You Shouldn’t Listen To Dave Ramsey’s Advice on Living Without a Credit Score
Written by
Joel Lim
Edited by
Levi Leidy
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Dave Ramsey needs no introduction to personal finance. He has helped hundreds of people emerge unscathed from the shackles of debt into financial independence. A few of his advice, though living on credit scores, for example, is more feasible for an average man on the street.
While many can relate to Ramsey’s advice to live without a credit score, it does have its downsides, especially for the average joe without significant cash savings.
This article will explain why you should think twice before going credit-free. To lend credibility to this, GOBankingRates spoke with Christopher McGlynn, a financial expert with over 15 years of experience, and he gave his advice on this matter.
Importance of Credit Scores in Day-To-Day Life
A credit score is much more than a number; it’s a financial passport that affects almost every part of the modern world.
From renting out a house to getting a car loan, your credit score is a yardstick for determining financial trustworthiness. Your landlord, lenders and even some of your employers will base their decisions on this figure.
“Having a credit score is always better to strike better deals with lenders,” McGlynn said. “An excellent credit score makes you creditworthy, which can lead to lower interest rates, saving you significant money over time.”
He continued, “If you want to rent an apartment, the landlord should be convinced that you can pay the rent without default. Similarly, if you explore lenders to get a car loan to buy a car. How do they judge your repayment capacity? Yes, your income documents are essential, but are they sufficient? The answer is no because your income documents show nothing about your creditworthiness. The only document that does so is your credit score.”
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He also said a credit score “can also affect non-borrowing situations, such as insurance premiums, job applications and paying rent. Many employers check credit reports, especially for positions involving financial responsibilities. Similarly, insurance companies use credit scores to determine premiums. The higher your credit score, the better your chances of getting concessions in premiums.”
McGlynn agreed that some people can potentially live without credit scores, but he says that you can live without credit only “if you have significant savings and can pay for major expenses in cash.”
Why Underwriting Isn’t So Practical
Ramsey’s alternative is getting out of the credit scoring system and doing underwriting.
McGlynn said that underwriting “can consume more time because it involves a detailed review of your financial history without relying on a credit score. The process is theoretically sound but practically less predictable and prone to errors.”
He also pointed out that “manual underwriting can be inconsistent because it depends on how underwriters interpret your financial information. Different underwriters might interpret information differently.”
Credit Cards Are Worth It If You Can Be Responsible
The major arguments Ramsey advances against credit are the abuses of credit cards, which, to him, are usually a way into debt.
While it is true that irresponsible use of credit cards can bring some kind of financial troubles, the problem lies in the behavior of the person using them, not with the tool itself. Applied correctly, credit cards ensure that one builds credit without debt.
“Responsibility is the key to building a good credit rating,” McGlynn said. “It means paying your bills on time, keeping credit utilization within reasonable limits (around 30%) and not applying for too many credit accounts simultaneously.”
Why Dave Ramsey’s Advice Resonates — And Where He Falls Short
“Dave Ramsey’s ‘Zero Credit Score’ concept resonates with many people because it promotes a debt-free lifestyle,” McGlynn said. “While it has potential drawbacks, it emphasizes financial discipline. People wanting to control their finances and avoid the pitfalls of debt appreciate this no-nonsense and straightforward approach.”
However, financial planning is never a one-size-fits-all. While it may work for those who can afford the large expenses in cash, Ramsey’s method could be more realistic for the average Joe.
This is where long-term financial stability is more appropriately attained: by building and maintaining a credit score.
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