Should You Follow Dave Ramsey's Most Controversial Advice?

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Is the personal finance guru correct in this controversial stance?

Key points

  • Dave Ramsey has advocated for avoiding debt entirely.
  • He believes you shouldn't worry about your credit score.
  • Being "credit invisible" has consequences.

Well-known financial personality Dave Ramsey provides lots of advice to his many followers. Some of it is good advice, like his suggestions regarding repaying debt and saving up an emergency fund. However, Ramsey is adamant about one particular issue, and his advice on it is very controversial.

Ramsey believes that you should swear off using credit entirely and let your credit score go extinct. This is very different from the advice that most finance experts give, which is to take steps to improve your credit score.

So, is Ramsey right that you shouldn't worry about your credit record, or is this advice you simply shouldn't listen to?

Ramsey's reasoning

Ramsey's position is that a credit score is an "I love debt score," because it's calculated based on your payment history, amount owed, length of credit, and credit mix, among other things.

He argues that you're better off not using debt at all, which would leave you without a credit history necessary to formulate your score, and he claims you'll be better off if you do this because a "'superior' score in no way, shape or form indicates you are good at handling money."

Here's the problem with Ramsey's advice

The issue is, as Ramsey admits, most creditors do view your credit score as a proxy for your ability to manage money. And creditors aren't the only ones who do this. Your credit report and score will be checked by a host of people and companies you are interested in doing business with, including:

  • Landlords
  • Car rental companies
  • Utility companies
  • Potential employers
  • Cellphone companies
  • Insurance companies

If you do not have a credit score because you've sworn off borrowing entirely as Ramsey suggests, you may not be able to easily rent an apartment, you may face higher utility bills, and you may not be able to get a cellphone contract.

Sure, there are ways around these things, like trying to get proof of your rental history or signing up for a post-paid cell phone. But sometimes landlords and other companies won't want to deal with this added work to look at alternative data and will simply deny you. And in other cases, such as when renting a car or signing up for utilities, you may have to tie up a lot of money by making a large deposit or having a large hold placed on your bank account.

Swearing off debt entirely is also impractical for most people, as borrowing to buy a home or car is often necessary. And it often makes more financial sense to borrow at a low rate for assets like a home than to pay cash since you could invest and earn a better return on your money than the return you'd get from avoiding mortgage interest.

Using credit responsibly has many benefits

The simple truth is, a credit score is the price of entry for doing business with almost any financial institution in America, and with many non-financial institutions as well. That's why the majority of financial experts urge you to work on this score rather than disregard your credit record altogether.

There are ways to avoid paying interest on debt while still building a good score, such as making one small charge on your credit cards each month (like for a streaming service) and setting up auto payments for your monthly bill.

When you can adopt techniques like this, there is no reason to follow Ramsey's advice and eschew all borrowing when doing so may make your life so much harder.

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