Score Big Without Getting Any…The Truth About Credit Scores

“Quick! Run!!!” As soon as my friend and I run out of Macy’s, I whisper into her ear, “I can’t believe it, I just got a free $100 bag, they forgot to charge me!!!” Walking fast, heart beating in my throat, I felt like I beat the system. The cashier lady had me fill out some application, scanned the bag and gave it to me without taking any money.

For the next few months I started receiving letters from Macy’s, which I disregarded and threw away, thinking it was advertisement. Four months later I actually opened the subsequent letter. It was a bill. Confusion. I thought they didn’t charge me for that bag, but now the total bill was over $200…!

I received my first credit card when I was sixteen. All I needed was my mom’s name and social, which I incidentally knew by heart, and an ID. I signed up quick and easy, for what I thought was a store rewards card, and hence disregarded the bills coming through the mail after my “free” bag incident. “Who knew this existed?!” I thought. It’s free money, I’d just have to work more and pay it over the next few months. But it is a genius ploy for the card companies. Offer people more than they can afford and then create a slow repayment plan for their convenience, with other fees and charges spread throughout the years.

Once again I was lost. “Is this worth it?” the sixteen year old me thought. So I went around asking people for advice. Everyone I spoke with seemed to agree. Having a credit card is the first step in building a good credit history. Why? Well, at the time the “why” wasn’t of interest to me. Main point is that I was doing the “right thing” because everyone else was doing it, the teenagers and the adults alike. It was built-in in our minds that a good credit score = future success.

The Holy Truth

Multiple studies have been conducted on the topic of spending and its impact on our neuroscience. It has been noted that spending cash actually activates pain receptors in our brain as compared to spending using credit cards, in turn causing us to spend 15% more on average (Scott Rick PhD, psychology today; Carnegie Mellon University). Let’s also consider the convenience factor of credit cards. If you’re out of cash and have an urge for that thick, moist, savory brownie in the bakery window, BOOM, instant reward! Use a card = get a sweet. No pain of giving away cash involved. This is the exact reason more and more businesses accept plastic today, including vending machines.

And what about all the rewards being offered, from travel points to sign-up cash bonuses. But consider this: are the credit card companies really that holy that they are willing to give away free things without a substantial gain? Of course not! They know that a little honey brings all the bees to the yard! This, in the long run, earns them millions of dollars through late fees, interest on those cards not paid off monthly, etc.

The Credit Score

What comes to mind when we think of the credit score? The Bigger the Better! Right? Wrong!!! For years I believed that having a great one would somehow lead to financial success in the future. Now let’s think long term. What does a high credit score actually get you? MORE DEBT! Better score = better car [loan], bigger house [loan], bigger engagement ring [loan], more bottles at club Marquee and bigger-chested ladies at your table, followed by a smaller savings, smaller investment, more stress, and a later retirement, if any.

What is a credit score really? It is the measure of how well we can borrow money and how well we can pay it back. Did you know that when we stop borrowing money, in about a year our credit score disappears? And if I were to rent out a house and had to choose between two tenants, who’d be more reliable, the guy with the 800 credit score, with $30,000 in credit card debt or the guy with a zero score but who has $30,000 in the bank, lives on less than he makes and budgets his money?

So once I realized I actually did not beat the system and did not receive a “free” bag from Macy’s, it clicked. But it’s ok! I still have free money! So what if I can’t afford it at the moment, I’ll pay it back eventually. And so I continued to live, through the college years and up to only two years ago. At one point my college grades were suffering and I decided to quit work in order to have a better chance of getting into nursing school. At this time I ended up paying credit cards with other credit cards. Is this pathetic? No, I just didn’t know better and didn’t realize the long-term consequences that would follow.

The Homeless Fella

There is a man I pass every morning on the way to work. He’s got a sign up, “looking for work, have three kids, please help.” He wears regular clothes, a bit worn by the look of it. He has a cane, occasionally smokes and kindly smiles at the passers’ by. And I realized one day. This lovely homeless man, with the two front teeth missing, has a bigger net worth than I do! If he made five dollars that morning, that was five dollars more than I was worth (monetarily, mind you)! My net worth in 2013 was negative $100,000 (bank account = $200, Macy’s card = $800, chase card = $5,200, Sally Mae loan = $94,000). Net worth = what you own minus what you owe. How’s that for a reality check.

From that day I swore off using credit cards ever again. Cut them up. Not only did they keep me in a delusional world, where I could afford anything, but also kept me from planning my future properly. At that point I would have to work till I was way over 70 and would not get to spend my time how I really wanted, with my family and traveling. Instead of revolving my money in and out of credit cards I could be regularly investing that same amount, building on compound interest and retiring way before social security will “allow” me.

No longer will I be that naïve sixteen year old. Even if that means not stealing any more “free” bags. We all have the power to take full control of our lives and be more than just average. We can also tell ourselves stories about the different perks of things like credit cards and high credit scores. It’s easy for us to get lost in the details, but let’s not forget the big picture goals and the consequences of straying away.  After all, life is lived best when lived simply.

Author: Tiffany Olson

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