I recently celebrated the proudest accomplishment of my life. After completing my undergraduate degree with no debt I felt compelled to show how smart I was. I promptly borrowed $20,500 for the first year of my Master’s program. Genius, I know. By the 2nd year of my program I realized I was borrowing WAY too much money! I began working 3 jobs and paid cash for the 2nd year of the program. After completing my Master’s degree I enrolled in the PhD program. I learned that the PhD would be fully funded but there was still a problem. Due to interest my student loan had already grown to over $22,000. I was informed that I could defer the payments until after I graduated from the PhD program. However, by doing this my loan would have grown to roughly $26,322.52 before I ever made a payment. The normal loan repayment period of 10 years meant I would have paid back $34,200.00 after borrowing only $20,500.
I knew there was no way I was going to pay $13,700.00 in interest. I made a commitment to pay off my loan as quickly as possible. The result? I paid off $23,071.63 in 9 months and 22 days while being a full time PhD student. Enter, the credit score. One who adheres to the financial dogma of the credit score may or may not be surprised that paying off my deferred student loan in under 10 months dropped my credit score by 36 points! Now, in paying off my student loan I also committed to never borrowing money again. Not for a car. Not for a house. Never again. For that reason, I don’t care about my credit score. Cash purchases simply don’t require them. However, one should still investigate what actually happened here.
Why the Credit Score is MASTER MANIPULATION
Let’s think about this for a second. The financial industry has come up with a way to grade you on how good you are at making THEM rich. The better you are at making them rich via borrowing money and paying them interest, the more points you score! Woohoo! Right? But, what is your reward for scoring a lot of points in this one sided game they have designed for you? Well, you get the opportunity to borrow more, pay more interest and make them richer. See the problem with this yet? Upon reading that description nobody in their right mind would play that game! That is where the manipulation comes in.
By convincing industries to use the score as a prediction of your ability to lease an apartment, have a cell phone plan or buy a car on debt (which is a bad idea anyway) they make you feel like you have to play. And of course we can’t forget the “Don’t you want to own a home someday?” question that makes everyone race to enter the credit score game. Can you do all of the aforementioned things without a credit score (There is a distinction between no score and a bad score)? Sure. Can it be tricky? Yes it can. However, I can put up with said trickiness to avoid being screwed by a one sided game that was not setup with my financial well-being in mind. After all, this game punished me and took away points because I paid back my loans quickly thereby making me less profitable to the lender. When you stop making them rich (by paying off and/or closing account) you stop “winning” their game. A game which you can never actually win anyway. Understand what the credit score actually is. Build wealth for your family, your children and your future. Not theirs.