Dave Ramsey is well-known for being anti-credit card, but the finance guru has actually gone beyond just saying you should steer clear of cards. In fact, he has gone so far as to suggest that having a high credit score does not matter and isn’t something to strive for.   

Ramsey believes you can get by fine without good credit because you should steer clear of debt whenever possible. If you aren’t borrowing, he thinks there’s no reason to strive for a good score. And, when it comes to bigger things you may have to borrow for, like a mortgage loan, he says you can opt for traditional underwriting. This would allow you to get approved based on other financial credentials, even without meeting your lender’s minimum credit score requirements. 

One reason why Ramsey goes against the grain when it comes to credit scores is that he doesn’t like the fact that your score improves the more debt you take on. And, he is correct that those who rely more on debt fare better in terms of their credit score than those who don’t borrow at all. That happens because you need a borrowing history to show you can be responsible with credit to earn a good score. 

So, is Ramsey correct that a high credit score doesn’t equal financial success? He’s actually spot on with that particular statement but he’s wrong about the fact you should ignore your score entirely.  Here’s the truth about why your credit matters, and some details about how there’s a right and a wrong way to earn good credit. 

You can have a good credit score but be in a poor financial position

Ramsey is right that your credit score isn’t an indicator of financial success. In fact, you can be in pretty bad shape money-wise but still earn a good score. 

See, your credit score is based on:

• Whether you make on-time payments
• Your mix of different credit
• Your average age of credit
• How many inquiries are on your report,
• Your credit utilization ratio

Only one of those, your credit utilization ratio, looks at how much you owe. Your credit utilization ratio measures credit used versus credit line available. You’re penalized if you max out your cards or carry too large a balance.

As far as the other factors, though, you could be paying tens of thousands of dollars in interest, regularly carrying a balance on cards, and devoting a huge portion of your income to debt payment and still earn a good credit score. This is why lenders typically don’t just look at your credit score when they decide whether to give you a loan. They look at your debt-to-income ratio too — which is a measure of your balances and payments relative to income

Both credentials matter because credit score alone can’t tell whether you are too reliant on debt and are in poor shape financially because of it. 

There’s a right and a wrong way to earn good credit

Ramsey is wary of efforts to earn a good credit score because he believes that far too many people cannot borrow responsibly.

His concern is that if you get a credit card to try to build good credit, you’re going to end up charging way too much on it, find yourself carrying a balance, and make living within your means harder because you are devoting your income to interest payments. 

And, some people do indeed fall into this trap. However, many people don’t. Many people get a credit card, use it responsibly, build credit, and even earn points and miles as an added bonus. For those people, a credit card is actually the best way to build credit and is a great tool that can contribute to their success.

That’s because, contrary to what Ramsey says, a good credit score is important. Good credit helps you succeed financially because most lenders won’t do traditional underwriting despite what Ramsey may think. You’d be limiting your mortgage options without good credit. A good credit score can also result in cheaper insurance rates and lower deposits on utilities. And, credit cards can provide other benefits too, like protection from fraud and extended warranties on purchases. 

While you should listen to Ramsey and realize that your credit score is not the be-all, and end-all when it comes to your financial success, you should also make it a habit to earn good credit by being a responsible consumer. Get a great credit card, use it for purchases you can afford to pay in full, and earn a score that opens doors for you. That’s how you become a financial winner. 

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