A Message from Penny Forward Founder and CEO, Chris Peterson

Hello Penny Forward community,

I hope you’re all doing well! Today, I want to talk about something that’s been on my mind since I came across a post from Dave Ramsey on Facebook last week. Now, before we dive into it, let me just say that I have a lot of respect for Dave Ramsey. Whether you agree with his views on politics or religion, there’s no denying that he’s made a huge positive impact on many people’s lives. His straightforward, no-nonsense approach to personal finance has helped millions get out of debt and take control of their money. I agree with a lot of what he teaches, but, like anyone, he’s not infallible. Some of his advice is either outdated or just plain wrong, especially when it comes to building and maintaining a good credit score.

The post that caught my eye featured a caller named Valary who asked Dave a simple question: “What’s the best way to build credit?” Instead of providing her with the practical advice she was looking for, Dave responded by saying that the only reason you’d want to build credit is to go into debt and that the only reason to get into debt is to build credit. To me, that’s not just a missed opportunity to educate—it’s flat-out wrong.

There are plenty of reasons to build good credit that have nothing to do with going into debt. Yes, getting favorable loan terms is one reason to have a good credit score, but it’s far from the only one. Let’s explore why having good credit is essential and how you can build and maintain it without falling into the debt trap.

Why Good Credit Matters

Employment Opportunities

Did you know that having bad credit can make it harder to get a job? According to a 2018 HR.com report sponsored by the National Association of Background Screeners (NABS), 95% of companies conduct some type of background check on potential employees. Of those, 16% perform credit or financial checks on all job candidates, and nearly one-third conduct credit checks on some candidates. For people who are blind or have low vision, job searching already comes with its own set of challenges. The last thing we need is another hurdle to overcome. Why give a potential employer a reason to pass you over when it’s within your power to maintain a good credit score?

Housing and Renting

If you’re in the market for a new apartment or home, you’ll likely face a credit check. Landlords often use credit checks as a tool to vet potential tenants. These checks provide landlords with information about your payment history, any bankruptcies or accounts in collections, and your current debts. This information helps them determine whether you’ll be a reliable tenant and how much rent you can afford.

So, if you’re searching for a new place to live, having good credit can make the process smoother and less stressful. It can also help you secure better rental terms, which is especially important if you’re trying to balance rent with other financial obligations.

Homeownership

For those of you who dream of buying a home, good credit is key. Even if you follow Ramsey’s advice to get a 15-year fixed-rate mortgage, having excellent credit makes it easier and less stressful to secure that loan. A strong credit score can lead to lower interest rates, which can save you thousands of dollars over the life of your mortgage.

Building Good Credit Without Debt

While I agree with Dave Ramsey that debt is something to be avoided whenever possible, I disagree with his assertion that building good credit is unnecessary. You can build and maintain excellent credit without drowning in debt. Here’s how:

On-Time Payments

One of the best ways to build good credit is by consistently making on-time payments. This doesn’t just apply to credit cards or loans; paying your utility bills, rent, and other regular expenses on time can also contribute to a strong credit history. Services like Experian Boost allow you to have these payments reflected on your credit report. You can even ask your landlord or property manager to report your rent payments to the three major credit bureaus or use a free service like Self to report these payments yourself.

Responsible Credit Card Use

Credit cards can be a double-edged sword, but if you have the discipline to use them wisely, they can be a powerful tool for building credit. The key is to keep one credit card open and use it sparingly—perhaps for one or two small, recurring bills. The trick is to pay off the entire balance each month. This shows potential lenders that you can handle credit responsibly and helps you build a positive credit history without carrying a balance.

Monitor Your Credit Reports

Keeping track of your credit reports is essential. You can order free copies of your credit reports from each of the three major credit bureaus—Experian, Equifax, and TransUnion—through AnnualCreditReport.com. This is the only official source for free credit reports and checking your own reports will not impact your credit score. The reports you receive from this site are accessible, with options for large print, Braille, or audio CD by calling 877-322-8228. If you use a telecommunications device for the deaf (TDD), you can call 1-800-821-7232. Monitoring your credit reports regularly helps you spot errors or signs of fraud early, ensuring your credit remains in good standing.

In Conclusion

I’m a big fan of Dave Ramsey. He’s a personal finance powerhouse who has helped countless people get out of debt and take control of their finances over the last 30 years. But let’s face it, he doesn’t get everything right. His take on credit is one of those things. While I agree that avoiding debt is wise, it’s also important to recognize the value of building and maintaining excellent credit. It’s not just about getting a loan; it could be the difference between landing a job, securing safe and comfortable housing, or even buying your dream home.

If you’re looking to learn more about credit, I highly recommend checking out Penny Forward’s “Concerned about Credit” course. It’s packed with valuable information about credit reports, credit scores, and practical strategies for building and maintaining excellent credit. Remember, having good credit is about more than just numbers on a report—it’s about opening doors to opportunities that can enhance your quality of life.

Stay financially savvy, everyone!

Chris Peterson, AFC®
Founder and CEO, Penny Forward