My Tough Love Campaign Against Credit Score Obsession (Part 1)

August 7, 2008 by  
Filed under Debt and Credit

I have observed that too many Americans are now obsessed with their respective credit scores, sometimes also referred to as a FICO score.  Based on a recent development involving one of my sons (and his lack of any credit score), I have decided to publish a series of posts about credit score obsession and how it distorts money behavior in a mostly negative way.  In turn, this causes people to focus on incorrect targets in their financial plan.

First, let me share the credit score story involving my son (and then me).  He is in his first full time job after graduating from college (on the 4 year plan no less!).  He has been saving money from day one (no student loans, no car payment, no credit cards) – good for him.  I encouraged him to find an online bank to use for his emergency fund savings.  I suggested he try GMAC Bank, which is where my wife and I have two accounts.  We are using these accounts to accumulate cash that will be used to pay off mortgages in the near future.  GMAC Bank service has been good and rates have been acceptable.   After taking his application, requiring him to mail in proof of identity and residence, and making him wait for two weeks, GMAC finally contacted him and rejected his money.  Why?  Because he had no credit score!  Why did he not have a credit score?  Because he did not use credit.  Apparently – at least to GMAC – that is a cardinal sin in American culture. 

When I heard this I was furious.  I called GMAC Bank myself and spoke to a customer service representative and then, at my request, a supervisor.  I reported that my wife and I had substantial funds on deposit at their bank but that I was disturbed to learn that the bank had refused to open a deposit account for my son, for the sole reason that he had no credit history.  I was told that indeed, GMAC required a minimum credit score to open an account.  I specifically asked the rationale for such a requirement and whether the requirement could be waived.  I was told that it could not be waived because their “investors” insisted on this requirement.  What does that mean?  Since when do investors in a large financial institution determine policies for opening new deposit accounts involving no risk?

Being unhappy with the responses, I made it clear that I was going to move our money to another bank.  They didn’t care.  (They probably didn’t believe me.)  After hanging up, I began calling other online banks, including HSBC and ING Direct.  The first question I asked was whether the bank checked the credit history of applicants for deposit accounts.  Most responded that they checked only to confirm the identity of the applicant.  I was also told that (unlike GMAC Bank), they did not check and did not care what the applicant’s FICO score was.  Finally, I contacted Capital One Direct.  I was pleased to learn that it did not access the applicant’s credit file for any purpose.  That’s what I needed to hear and that’s where our GMAC Bank deposits are being transferred.

I know that some readers are thinking that I am wasting time and energy on a campaign against credit score obsession, because the FICO score is used in all aspects of everyday life.  That may be true but it hasn’t always been the case.  Moreover, it simply is bad policy.  Trying to maximize your credit score can lead to some very bad money decisions at the expense of other, more valuable financial metrics.  We need to re-focus people.  We are allowing the credit industry to lead us like sheep into adopting credit habits that favor creditors.  That is what I will be talking about as this series continues.

Read about Responsible Credit Score Strategies for Young Adults

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4 Responses to “My Tough Love Campaign Against Credit Score Obsession (Part 1)”
  1. Paloma says:

    Mr. ToughMoneyLove:

    You are my new idol. I couldn’t agree with you more. In the past 2 years it came to me as if it were a revelation that this country is I fear irrevocably obsessed with the FICO score and use of credit. I just don’t understand the obsession and I believe the current economic crisis in this country speaks volumes as to why this obsession needs to stop. Big banks and government have far too much power over American’s every day life and the quality of life is such that I contemplate emigration on a rather regular basis. This trend is very disturbing and only those with something to gain see otherwise. The new “American Way” has become success at any cost, especially the cost of others.


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