Highlights from the Dave Ramsey Show

Question: Karen on Twitter asks what Dave would recommend to help her 18-year-old build credit. Dave's suggestion is to not teach her 18-year-old to build credit.

Answer: Karen, you're not going to like my suggestion nor are you going to understand it, but I'll try to help you with it. My suggestion is that you don't teach your 18-year-old to build credit.

The concept of building credit is simple. It is borrowing money to prove my reputation so that later I can borrow more money. Does this not sound like a dog chasing its tail to you? It does to me.

The question you ask presupposes that the best way for your 18-year-old to have a good life is for him to be in debt. I disagree. I think the best way for your 18-year-old to have a good life is to stay away from debt. As a matter of fact, I'm positive the best way for your 18-year-old to build wealth is to stay out of debt, because your most powerful wealth-building tool is your income.

People who teach their 18-year-olds to build credit—to go get a credit card so they can get a car loan so they can get a house loan later—get one so you can get one so you can get one—when you teach people to do that, what they end up with is the normal American situation, where they're 32 years old with two kids, the student loan is $30,000 and has been around so long they think it's a freaking pet because you can't be a student without a student loan. You've got to build your credit. Of course you have a car payment. The average car payment in America is $486 over 84 months. You've got to have one of those. That's part of the rules. And of course you've run up your credit cards because you were using your credit cards to build your credit. You promised yourself you were going to pay them off every month, but you didn't. A hundred million people do not pay their balances off every month. So all of you people who say, "Pay off your balance every month," that's a bunch of crap. It just doesn't happen. It doesn't work, folks. It just doesn't work. It's that simple.

The deal is that if you take that average car payment for little Billy who's 18 years old and say you're never going to put him there, and he starts saving and investing the car payment because he stays out of the land of car payments for the rest of his life, then what you've got is he could invest that from age 20 to age 60 and he'll have $5–-6 million. That's what the average car payment costs you. Had you saved and invested the average car payment, you're going to have $5–6 million. So I don't want Billy to build credit. I don't want him to be normal and average and typical with a great credit score and no freaking money because all of his money's going to the bank.

What I would tell you with your 18-year-old is beg them not to build credit. "Well, they can't rent an apartment without credit." Horse crap! Of course they can rent an apartment without credit. They may not be able to rent some apartments without credit, but so what? You can certainly find a rental property that you can rent without credit. There are plenty of them, especially if you're 18-freaking-years-old. People don't expect you to have a credit report as long as your arm. "Well, they can't buy a car without credit." You're right. He can't buy one on payments without credit, but he can save up what most people pay as payments and in a few months have the money to pay cash for a car. Think about it. For 10 months, you put $484 in a cookie jar, what would you have? Four thousand eight hundred dollars. You'd have $5,000 in just 10 months. Save up and pay for the car instead of going into the normal car payment crap that's out there.

That's what you've got to do. You don't build your credit. That's the answer for your 18-year-old. Tell them not to build their credit. Tell them not to be normal in America and instead to become wealthy, because that's the best way to take care of yourself, your kids, change your future. That's the best way to do it. It's absolutely the best way to do it, and it's the best way you can help other people is to stay out of debt so you actually have money instead of giving it all to the bank every month.

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Question: Hannah in Los Angeles wants to know if they should close their credit card accounts. Her husband is hesitant to do it because he's afraid it will hurt their credit rating. Dave says it will, but if they're going to stay out of debt, it doesn't matter.

Dave Ramsey's advice: It will lower your FICO score. But I got confused here. I thought this guy was enthused about doing a Total Money Makeover and was not worried about being in debt. If you're not going to go into debt, why do you need a FICO score?

He has a disconnect here. What happened is he kind of reverted back to his old self, which was a FICO worshipper, and I'm not a FICO worshipper. I don't want you to set out on purpose to destroy your credit. That would be silly. But if you do something in the name of getting out of debt and staying out of debt that is financially healthy and that dings your credit a little bit, big deal. My credit score is zero and has been for many years. How do I survive? Financial health. I have money. How do I have money? I quit giving it to the bank to keep my FICO score up.

If you quit borrowing money, your credit score is going to go down. Your credit score is 100% based on you borrowing money and paying it back with interest on time. It's not based on you doing smart things financially. It's based on you loving debt. When you quit playing kissy-face with the bank, your credit score's going to go down anyway. If you close all your accounts and quit borrowing money right now, in 18 months, your credit score will be zero. How distressing is that? It's not distressing unless you're going to go borrow money using your credit score.

I would close the accounts. The problem is you can't half-ride this horse. You have to decide which way you're going. You either have to worship at the altar of the great FICO or decide that you're not going to borrow money and the FICO score is going to go away.

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Question: Mitchell in Napa wants to know why employers are checking credit before hiring. Dave explains that it's typically Corporate America who wants to check a credit score, and it could be related to the type of work you're being hired for.

Dave Ramsey's advice: It's not unusual. Usually, it would be Corporate America that does that. It's typically not your small business, and/or it would be somebody where you're going into a financial arena or something like that. If you're going to be a banker, they want to know that you're handling money right and handling credit right. Some companies use that as an indication of whether you're responsible or not. Obviously, I don't agree with that. I don't pull credit bureaus on people we hire here, and I have 300 folks working for me. Not everyone does this.

If a company is so big that they don't think about anything other than what your FICO score is, then I probably don't want to work at a place like that anyway. A company that bases their hiring on a credit score won't be hiring you. But if they're that stupid, I don't want to work there anyway.

There are so many ways to make a living in this world that I don't have to go to work for some company that has become so corporate and their HR department is so lame that their main hiring tool is a FICO score. If they don't actually interview human beings, assess their talent levels, look at the past work history, work performance, education levels, relational intelligence as proclaimed in an interview--if they don't go through that process to hire, then you don't want to work for them unless you're stupid. You want people to hire you because you're a quality person and can deliver the goods. If you're being hired by some false measure of success, this is not a company worth working for.

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