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. Spending mental energy to think about your 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 where maybe you can earn a gold star. And now you don’t have to rely on that 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 put down the credit card application 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, chec