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A Life Without Debt: A High Credit Score

By , August 18th, 2009 | 14 Comments »

I know that many people believe that you have to have debt in order to have a high credit score. Many people keep their debt just so they can keep their score up (so they can get more credit later). They fret every time a credit card is closed or the available limit is lowered. They take out more credit cards to try to increase their available credit to boost their score. But I am living proof that you don’t need debt, or even a lot of available credit, in order to have a high score. My credit score is 835, just fifteen points shy of the maximum, and I have no debt.

My credit report consists of a couple of credit cards that I pay off every month and a long ago paid off short term mortgage that just hasn’t fallen off the report yet. I don’t have open lines of credit, lots of credit cards, car payments, or student loans. I don’t profess to know exactly why my score is as high as it is, given that I have very little credit available to me and no debt. I don’t understand all the workings of FICO’s secret scoring. But I do know that you obviously don’t have to have a lot of debt or available credit to get a high credit report score. By conventional thinking, my score ought to be close to zero. Why isn’t it?

My payment history has a lot to do with it. In all the years I’ve had those few credit cards and that mortgage, I’ve never missed a payment. Ever. I may not use a lot of credit, but I’m reliable with what I do use. I haven’t applied for credit in years so I don’t have a lot of inquiries dragging down my score, either. The credit cards I do have are old, which gives me a long history. The longer your credit history, the higher your score. I guess in theory the fact that I have about $10K in credit available through my credit cards and a zero balance on them means that my debt to credit ratio is quite high. In other words, I have a large sum of money available to me and I’ve used very little (well, none) of it. I laugh though because my $10K is a pitiful amount compared to what many people have. It doesn’t seem like it should be enough to register on the FICO scale. I’ve also never had any bill become delinquent, such as utility or rent payments, so nothing like that has ever lowered my score.

It may not seem like much in a culture that is obsessed with debt and credit as a means to a good credit score, but simply living responsibly and below your means can result in a good score. Yes, I do use credit cards, but I keep the use to a minimum and I pay them off every month, on time, without fail. That does give FICO some basis for creating a score for me. Maybe if I had no cards at all I’d have a much lower score. But I don’t have to carry tons of debt or open a credit line every year to keep my score high. I can be debt free and still have a great credit score.

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  • Sarah says:

    My thought…why be concerned with your FICO score if you just pay cash for everything. If I want something I SAVE for it instead. I never understood why you would want to finance anything, for instance a car. If you pay cash at the purchase then that is what you pay. If you finance, you are paying so much more for that car with the interest.

  • Jackie says:

    You said it yourself, ” I don

  • Jackie says:

    Sorry, let me clarify a bit.

    I hate seeing people make avoidable mistakes when they are in the process of trying to clean up their financial lives. They have the right idea, they are motivated and then they still get discouraged by a misstep because they simply didn’t know the sometimes counterintuitive rules used by the credit bureaus.

  • Monkey Mama says:

    To some of the other commenters – we live in a FICO society. My low insurance rates and employability depend on good FICO Scores (I am in the financial field). OF course FICO is important, even if you don’t borrow money.

    To Sadie – very true. My score has always been high 700s/low 800s. We have a mortgage and credit cards we pay off every month. I did a series of 0% credit card arbitrage last 2 years, and my score went up 30 points when I paid off the cards. I also never keep old credit cards open. My credit card history only goes back 2-3 years, though I’ve had cards for 15+ years. (Though truth is – those old cards stay on your report for a long while).

    Mortgage lenders and car sales people will always tell you that you have to have car loans and keep balances to build up a credit score. Most truly believe it. It can be frustrating trying to educate people sometimes – truth is no one fully understands FICO. I do everything “wrong” except that I always pay my cards and mortgage on time. That does seem to be the “secret” to a good score.

  • Robert says:

    Make the commitment to live: Debt Free and don’t look back. Not having credit cards will save you from the chance of the credit card companies trying to cheat you. They can impose anything on us as long as we owe. You won’t need a FICO score.

  • Gail says:

    20-30 years ago it seemed that except for wanting to take out a mortgage, no one ever even thought about their credit score. Now you see something about it every day. When you read most discussions about it, the people who have the lowest score due to being swamped in debt and bills they can’t pay are the ones hanging on tighest to their creidt cards because they think it will help their score (at least according to them). A person with no debts should have a high score, but then they usually don’t need to ‘cash in’ on their FICO score because they pay cash for what they need. I don’t understand why someone’s fire and car insurance would be tied to their FICO score, (maybe the insurance companies think someone with a lower score will deliberatly cause/make a claim to raise money?!)

    I suspect after this latest economic fiasco, FICO scores along with everything else is going to be looked at differently.

  • Callie says:

    Great post! If everyone treated credit cards like this, we’d all have a lot fewer problems today.

    I know that FICO looks at the average age of your credit cards — the older they are, the higher your score. The best advice is not to close an account once it’s paid off, especially if it’s a few years ago.

    And I’d like to respond to Gail: I totally agree about how nonsensical it is to tie insurance premiums to credit scores. Just as it’s funny that a 25-year-old man’s car insurance rates go down — are they magically more mature than a 24-year old?

    Again, great post and thanks for sharing!

  • gladwyn says:

    FICO score calculation has become a source of debate. You never know which parameters do they actually treat as high. May be the credit history, the type of credit, credit limit. But over the time the FICO score calculation has improved. It may take a few more years to weed out the anomalies.

  • John says:

    I never worry about my credit score since I pay cash for everything. If you don’t finance anything you don’t need a credit score.

  • cb says:

    I have a credit score of 785 and I was told that I am 15 points shy of perfect. I wasn’t aware there was a number above 800. I have 10k on one card at a fixed until its paid off rate. My available credit is about 60k. I’m assuming they will lower available credit at some point. I owe nothing on my one card, I have a fixed 5.9% for life of balance (10k) and I pay the other one off every month.

    Many credit cards will be charging customers an annual fee who don’t charge a set amount each year. I don’t think a good credit score is worth being blackmailed into an annual fee. Are you willing to pay one of your cards a 60.00 annual fee for not charging enough? I’ve had Citibank for 20 years and I will NOT pay them an annual fee just to keep a high credit score.

  • JJ says:

    Your FIOC score impacts every financial transaction you make. It affects how much you pay for insurance whether it be car, home, renters, life, etc. The lower the score the higher your premiums. It also will determine if you get an apartment or not. Also NEVER close any of your accounts. That is a BIG mistake.

  • Mitzi says:

    I don’t like debt either. I have an 800 score simply from paying all my bills on time & paying off everything I can asap! I avoid debt like the plague. However, I am soon to cosign for a mortgage loan for my granddaughter! The financial industry calls people like me fools with fountain pens. The thing is, my name WILL go on the deed but someone else will be making the payments. If she doesn’t pay I will have to, but I also will be half owner of the property so I do have a little recourse there. For me it’s better that my granddaughter have a house than I have credit.

    I have also determined to quit driving! Crazy eh? Well, I figure I spend a lot of money for a vehicle and I’m pretty sure I could live without one. I want to buy a little manufactured home down on the gulf, sell my car & work a little retirement job. Why do I need credit? I can sell my little house & pay cash for my little place in the sun.

    The thing that drives Americans to debt is uncontrolled materialism. There’s better things in life than accumulating junk. Get out of debt, stay out of debt & live like no one else as Dave Ramsey would say. He taught me that and told me the FICO score is the “i love debt score”. What’s interesting is when I implemented his philosophy into my actual life my credit score went through the roof when now I don’t care to have it! LOL. That’s okay. I’m much better off. It is enabling me to help my granddaughter purchase a home of her own. Even if you don’t use it a good name is better than gold.

  • JK says:

    I don’t get credit scores.

    The only credit card I have doesn’t show up in credit reports from any of the three credit reporting agencies. Neither my checking account nor savings account show up either. The only employment information is 25 years old and shows an income of 1/8th of what my income was on my last job. Currently, I’m taking a two year sabbatical and living off my savings, traveling — so I have no income a present, and haven’t had one for 18 months.

    The only credit that shows on any report is a now closed checking account overdraft account that was never used, on a checking account from 28 years ago, and a home mortgage that was paid off six years ago.

    Despite all that, I have a credit score of 810. I don’t get it. I have no job. I have no income. I have no recent credit history. Yet, I have a credit score of 810. To me, that says that credit scores are totally useless and in no way reflect a person’s ability to pay off their debts.

    Credit scores are clearly stupid and meaningless.

  • CLT says:

    I’ve been debt free for 5+ years. During that time my FICO score has dropped from over 800 to around 750. Why? Because I don’t have loans, or so I’m told. I pay all my bills (all 4 of them) in full and on time every month. This bothers me. If I ever decide to buy a house, my FICO score will effect my mortgage. If I decide to move and rent somewhere else my FICO score effects my ability to rent and in some places even effects how much I’ll need for a deposit. It effects what you pay for car insurance too. It may not matter when I buy a car since I plan on paying cash for it but it does matter in some areas of my life. Has anyone else had this problem?


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