Why Do You Need Credit?

A case study on the usefulness of debt

Most people believe they need credit. They might be right, but let’s think about it before we assume it to be true.


Imagine a family has a mortgage on the house and two car payments. They refinanced student loans at a low interest rate last year, and they pay off the credit cards every month. They live on less than they make, although just barely.

Does this family need a good credit score?

Let me answer this question with another question. What would they need credit for?

The FICO score represents how long you have been in debt, how much you have borrowed, and how good you are at paying back the money you owe. Thus, it is a quick way for a lender to determine how much of a risk you are. The lower the risk you are, the lower the interest rate on money they lend you.

This would be helpful if you need to borrow money. (There are some other arguments for good credit, but this is the main one).

Does this family need good credit? Well, it depends. Does the family need to borrow money? Let’s see.

They’ve already got a mortgage, so they don’t need approval for a home loan. They have car payments on both vehicles, so they don’t need a car loan anytime soon. They have just refinanced the student loans, so good credit is no longer any help on that front.

And since they already have credit cards, they don’t need a good FICO score for that, either. Hmmmm.

Feel free to bring up the advantages of good credit, but let’s be clear about one thing….

The family doesn’t need credit because they don’t need to borrow money. They already have everything that normally requires borrowing. Now they just need to stay on top of all of the bills.

Too many families are still carefully protecting their credit scores when it doesn’t matter. Its major usefulness has run out, yet we are absolutely terrified of letting the almighty FICO score go down.

Does this all make sense? Share your thoughts in a comment below.

You know what would happen if you did let your credit score drop? Well, there are some things you can’t do without credit. But they might surprise you.

Do YOU need credit? Why? Be specific!

Author’s Note: I can’t believe LV already has three hundred posts! Thank you endlessly for growing with me three times a week as we struggle to make some sense out of life.