Non-Existent Credit Score: Good or Bad?

A little over a week ago I posted a question: Why would it be beneficial or detrimental to have a non-existent credit score? Only a few replied with responses like 'no credit is better than bad credit.' Another response was 'it's not beneficial' while another person put it very simply that 'without a credit score you can't borrow but you don't have any debt.' All are good responses. Now it's my turn. Here's my take.

I've recently finished taking an online course on personal finance and learned a little bit about credit, debt, basic investing, and personal budgeting. One of the more surprising things I learned was about credit scores, how they're calculated and what they mean. Basically, a credit score is a measurement of different factors to predict how risky it would be to loan you money. In other words, lenders want to know if you're given money you'll pay it back. Some of those factors include how much debt you have, how long you've had it, if you've been looking to get any new loans recently, and how reliably you make your payments.

 

There's one common factor in these things: debt. The better you are at managing debt, the more likely you'll be able to get loans...and more debt.

 

Now if you have zero debt, you won't have a credit score. It just can't be calculated. Some lenders won't give you a loan without a score, but theoretically, if you don't have any debt you should be able to save up your money to buy what you want. You won't need a loan for pretty much anything less than a house. It'll take a little time but you could save up enough money to buy a car, go on vacation, get whatever toys you like a lot quicker if you have no debt. No loan needed, no credit score needed.

 

But what about that house? How do you get a mortgage without a credit score? Most banks won't because they've grown so used to using a credit score. But credit scores haven't been around forever. They've only been around for maybe 40-50 years and people have been taking out mortgage loans way longer than that. You just need to find a bank that will do a no-credit loan and they'll determine your risk through a process called manual underwriting. Basically, the lender looks into your financial situation, your income, and so on to determine your level of risk.

 

Ok so credit scores really aren't needed. The score just makes applying for loans more convenient. After learning those things and tumbling it around in my head for a while, I now fall on the side that a non-existent credit score is more beneficial than detrimental. For one, I'll have no debt. No bills outside of living necessities and I'll get to keep a good portion of the money I earn. And keeping my money sounds more appealing than sending it away every month.

 

The downside to not having a credit score? You won't be able to borrow money or buy services that rely on credit checks as easily. But the way I figure, if I have to purchase something that relies on a credit check (like cable TV, or renting an apartment) I'll have some negotiating power because I could make a real cash offer. Tell me I can't buy cable when waving $800 in front of your face and I say you're an idiot. As for borrowing money, I'd just have to look around for a bank that isn't lazy.

All in all, I don't put much stock into credit scores anymore because they're directly related to debt. My goal is to get out of debt and get to a point where I won't need a loan. I mean, rich people don't carry debt or worry about credit scores. Maybe if I act like a rich person does, one day I'll be one too.