Life With No Credit Score

Life With No Credit Score by Leah Ellis

“You can’t buy a house without a credit score!” “You’ll never get an apartment without a good FICO score!” Some well-meaning relative, friend, or co-worker has probably proclaimed one of these, or some variation of the importance of having a credit score at some point during your debt-free journey. It is hard for many Americans to fathom the idea of not needing a credit score, or not having an emergency credit card for car repairs (or great sales.) Today, I’m going to address how a credit score is measured, some of the most common reasons you may be told you “need” a credit score, and how to survive without one.

First, I want to explain how a credit score is formed and what it measures. A credit score isn’t a measure of your ability to handle money, but how well you repay debt. According to myFICO, a credit score is used to determine how likely you are to repay a loan. myFICO continues, “It measures how long you've had credit, how much credit you have, how much of your available credit is being used and if you've paid on time.” In short, a credit score measures your relationship with debt (credit), how much you have, how much you’ve repaid, and if you are current on your payments. If you have no loans or credit cards, your credit score will be “indeterminable,” meaning you have no credit.

For teens and young adults, you are often told that you will never be able to rent an apartment, buy a car, or buy a house without good credit. This simply isn’t true. There are rental homes in nearly every US town that are owned by individuals and small companies who will rent a home or apartment with no credit check. These rentals usually require a security deposit, or an extra month’s rent, in order to sign a lease. Last year, Ramsey personality Anthony Oneal called several apartment complexes in the Nashville area, and most told him they would be able to get him into an apartment even without a credit score, assuming he was able to pay the security deposit. This a dangerous myth fed to our young people in order to create a habit of debt, loans, and a lifetime of payments.

Next, you may have a friend or coworker tell you that you’ll never be able to drive a nice car without good credit. They are partially correct, you’ll never be able to finance a nice car at a good rate without good credit. Fortunately, there are no credit checks when you save money and pay with cash, and no interest is the best rate of all. When you have no debts, you can easily save the money to buy a $25,000 - $30,000 car with cash if that is what you want to drive. A credit score is not a requirement of car-buying, and you can drive a nice car without a credit score.

Finally, we reach the hottest topic of interest for those who swear by the FICO score. “You can NEVER buy a house if you don’t have a great credit score!” FICO has only been around for about 30 years, how, then, were homes purchased for the decades prior to the introduction of the credit score? The answer to that is through a process called “Manual Underwriting.” Modern mortgages are primarily underwritten by computer programs that determine eligibility based on a few key details about you. This usually includes your income, debt-to-income ratio, credit score, and other personal information. Manual Underwriting is a process in which you provide detailed proof of your income, expenses, and payments for utilities or childcare to verify your ability to pay the mortgage payments to a person known as the underwriter. The underwriter then determines your eligibility for the loan and issues the final approval or denial of the loan application. Manual underwriting requires more time and documentation, but it is possible to get a mortgage and buy a home with no credit score. I’ll briefly mention that you can avoid underwriting all together by saving and purchasing your home with cash if you have the time and means to save the money to do so.

While having a good credit score makes it easy to finance large purchases, and take out loans, you don’t need one in order to pay cash. It has become an assumption in American society that you can only buy nice things if you take out a loan or credit card to do so, but it is possible to save money and pay cash if you’re not constantly paying payments for purchases you made in the past. Visit Endeavor Financial Coaching to schedule a free consultation and take the first steps to breaking the paycheck to paycheck cycle and reaching your money goals today.
Leah Ellis
Helping broke millennials break the paycheck to paycheck cycle and reach their money goals

endeavorfinancialcoaching.com