It shouldn’t surprise me, but I do find it interesting that so many people are concerned (in a few cases, obsessed) about their credit report and credit score.  They will analyze different tricks on getting a higher rating from the credit agencies.

Some people claim that it can actually benefit your credit score by holding a small amount of credit card debt while still paying at least the minimum due on time each month.  I don’t think there is much, if any, truth to this claim.  I have almost always paid my credit card balances off in full each month, and it has not seemed to impact my credit score.  Maybe if I had carried a balance, my credit score could have been higher by a few points, but I really don’t know that.

The most important factor is to pay your bills on time.  The second most important factor is to not get into too much debt, even if you are managing to keep up with the payments.

If you get those two things right, then that will mostly take care of the rest.  As long as you are not living a life off the grid and you are using our modern-day banking system, then your credit score will likely be good.  If you are young, say early 20s, then you will probably need to gain some history.  Once you have an established bank account and a credit card or two (even with low credit limits), then your credit score will naturally rise over time.

The main point I would like to get across here though is that you don’t really have to have a strong credit report.  As similar with many things in life, the ones who need the good credit score are often the ones who don’t have a good credit score.

If you are good with your personal finances, then your credit score will likely be high.  But if you are really good with your personal finances, then a high credit score probably won’t matter that much to you.

Sometimes employers will check credit reports of prospective employees, but not the actual scores.  An employer will probably not make this a deciding factor unless your credit report shows something particularly bad.

Your credit score may matter when looking to lease housing.  Again, it will probably only matter if your credit score is bad.  If it is mediocre, then it may not matter much.

Aside from these circumstances, the only reason a good credit score matters is so that you can take on debt at a competitive interest rate.  But if your personal finances are really good, then you really shouldn’t be dependent on debt anyway.  And if your personal finances are in bad shape, and hence have a bad credit score, then you probably shouldn’t be taking on any more debt, including a home mortgage.

If you had problems in the past, and your credit score is low now, then all you can do is make the right choices going forward.  This means staying out of debt, unless you have no other options.  It means saving a lot of money.

If you have a lot of money saved, then your credit score becomes less and less relevant.  Even if you need to rent an apartment, you can always offer to just pay the full year up front.  If you offer this, you might even be able to get a small discount.  If the place you’re renting is going for $1,000 per month, you can offer to pay $11,000 up front at the beginning of a one-year lease.  Even if you have excellent credit, you may want to explore this option in order to save money.  Just make sure you can trust the landlord, and get a receipt for your payment.

If you have a lot saved, then you should even be able to buy a car without needing financing.  It would admittedly be a lot harder to buy a house, but there are people who actually do pay cash (not literal cash) for a house without the need for a mortgage.  It makes it easier in the buying process, and you can also get better deals when buying.

There are middle class families (and even upper class families) that get into trouble with high debt.  It is easy to imagine a typical American family earning $100,000 per year (before taxes) that has a mortgage, two car payments, and some credit card debt.  Since they already have a house and cars, they really shouldn’t care about their credit score, or at least not directly.  They should care about debt reduction and saving money.  But this, in itself, will correct any credit rating problems.

For anyone reading articles about how to improve a credit score, they should focus instead on debt reduction and savings (unless such articles just interest them).

When it comes to personal finance, credit scores are just a reflection of your past decisions.  There is a correlation between bad credit ratings and bad financial decisions.  But the bad credit score is not a cause of the bad financial decisions.  It is a symptom.  So in this case, don’t treat the symptoms but the root of the problem.

In personal finance, the best thing to do is to have little or minimal debt and to save money.  If you have money in the bank, then it makes a lot of other issues become irrelevant, such as a credit score.