Almost every day I talk to someone who mentions their credit score. After being in school our entire young lives, I think we must all yearn for someone to give us another grade. And when the ol’ FICO corporation is slapping a big number on all of us we jump for joy and excitedly burn our financial future to try to improve it. But here’s the problem: Focusing on your credit score is a TERRIBLE way to win with money. You’re putting your energy towards exactly the wrong thing.
Why caring about your credit score sucks:
- It’s designed to make banks rich. And banks are rich enough. I want you to be rich. Your credit score EXISTS because banks use it as a way to maximize their profit and minimize losses when loaning money (or in some cases providing insurance). When you walk around downtown Manhattan, Chicago, San Francisco, etc and you see all those billion dollar high rises with banks names on the outside? They didn’t get there by playing games that make you rich.
- It puts your focus on debt instead of building wealth. As they say, numbers that are watched improve. And when you’re thinking and focusing on your credit score, you’re totally misplacing the time and energy that should be devoted to growing your own wealth.
- It encourages overspending. Thinking about your shiny fucking credit score? It’s a reminder you can borrow money to go play games with credit cards, buy too much car, and buy and too much house instead of spending less and investing your hard-earned money to make yourself rich.
What is a “Net Worth Score”?
Well… it’s not really a score. It’s just your net worth. That’s how many dollars you are worth. It’s defined as follows:
Net Worth = What You Own – What You Owe
But you know what? It should be a score. Let’s make it one.
As of today, I officially rename “Net Worth” to “Net Worth Score”.
This makes it sound more like a fun little game instead of a soul crushing reminder that you’re losing at life. And now you don’t have to rely on that shitty credit score to be the only grade you get now that you’re out of school.
Do you know your Net Worth Score?!
If you don’t know at least approximately what your Net Worth Score is as you read this you’re doing something wrong. So please stop watching your cartoon tentacle porn and follow these steps:
- Open up Google Docs
- Create a new Google Spreadsheet and name it “All Accounts/Net Worth Score”
- Create three columns: Account Name, Account Type, Balance
- At the top list every single financial account to your name with a positive value (savings, checking, 401k, Roth IRA, investments, stock, bitcoin, etc)
- Then list every big asset that you own (house, investment property, car, etc). Don’t bother with stuff smaller than a car
- Then list every single DEBT that you have: credit card, student loans, car loan, mortgage, medical loans, personal loans, etc. Make sure to list the balances as NEGATIVE numbers… debts count against your net worth.
- Then at the end SUM UP the “Balance” column to learn your Net Worth Score!
It should look something like this:
Why caring about your Net Worth Score is awesome:
- You know where you’re at. If you don’t know your net worth score, then you’re basically like an ostrich with your head in the sand with your credit score taped to your ass. Who cares if you have $4K in the bank if you owe $22K on your car?!
- You won’t lose track of accounts. Do you know where that savings account is your parents helped you open as a kid? Those bonds grandma gave you? That 401(k) from three jobs ago? I mean, there might be $25,000 in there but who cares if you lose it because you have a GOLD SHINY FUCKING CREDIT SCORE. (p.s. roll over that old 401k because it’s costing you almost a million bucks if you don’t)
- You better understand the cost of debt. When going to buy that next car, put that big TV on your credit card, take out student loans, etc. It’s easy to think in terms of “Can I afford the monthly payment?”. But you miss the point that you’re fucking your future self into years of indentured servitude paying for something you used up years ago. When you see the debt immediately crush your Net Worth Score you realize how far back it’s setting you.
- It puts your focus on building wealth. They say numbers that are watched improve. By watching your Net Worth Score you’re focusing your energy on building wealth and getting to a place where you don’t NEED to work.
- A good Net Worth Score means you don’t need to worry about a credit score. Rich people don’t worry about their credit scores. They buy cars in cash. They have plenty of money for big down payments on apartments or houses. They don’t need to prove to banks that they’re good borrowers because they don’t borrow money. They have money.
So next time one of your broke-ass friends asks you what your credit score is, tell them to get their head out of the sand and start tracking their Net Worth Score!
p.s. If you focus on your Net Worth Score your credit score will be fine. Make all your payments on time and stay out of debt and you’re already doing the two biggest things to improve your stupid fucking credit score.