Do you need a credit score?

[Fishindude77]

Probably in better shape than more than 90% of america.

Sad, but true.
The average person living in a decent house, driving a decent vehicle, working a decent job, would be hard pressed to come up with $1000 quickly in a pinch. They are living day by day, on mostly borrowed money.

[dczech09]

I do not have a credit score. I paid off all of my debt a few years ago. Since then my credit score has fallen to 0 because there is not enough information for the credit scoring algorithm to use.

I still live just fine. In fact, I just recently got approved for a new town home even though I have no credit score.

Simply all I did was hand in my application, and I explained that I have no credit score. While I do have a credit report, and they can review my history on the report, I do not have a credit score as I have not borrowed any money recently. They accepted my application without a problem.

No credit score is better than a bad credit score. And no credit score is not better or worse than a good credit score - it is just different.

I think it is important to understand that one's credit report and credit score are two completely different things. We want and need our credit report to look good and be accurate. After all, many people will check that from time to time. However, our credit score is only relevant to parties who will lend us money. For example, a potential employer or insurance company does not necessarily care about your credit score.

If you are planning on borrowing money any time soon, then your credit score will be important. All of the factors that determine your credit score can be found on your credit report.

Before a bunch of people jump down my throat...

I have thoroughly research this. I have called, emailed, and spoken to landlords, utility companies, cell phone companies, insurance companies, and financial firms about the relevancies of credit reports and credit scores. This is not simply my opinion.

[Outdoorsygal]

And this is exactly why we had our daughter get a credit card as soon as she turned 18. She's now 21 and has a 3+ year credit history and an 802 credit score.

Yes he has to go into his bank tomorrow to apply for a credit card.
Underwriting denied him for now. We aren't sure we want to be linked to him, not due to any bad credit but just the moral of it
He was told to charge something like groceries on it then pay it back for a few months.
Hopefully it won't be too long.
This company sounds very aloof to me, here is the email from yesterday. But he is following thru

Hi ****

I spoke to my credit repair/restoration company that I’ve been using for the last 5-6 years and they suggested doing this…

1. Call Chase credit card and tell them you would like to add Eric to your card as an authorized user – Make sure you have Eric’s SS# w/ you, they will need this to add him to the account.
2. When you are on the phone with Chase and they’ve added Eric to the credit card, find out what days of the month they report to the credit bureaus – This piece is very important. Once you have this info, please report back to me so I can take a note on my side.
3. Lastly, once Eric’s added to the credit card, it’s imperative that you make a few small changes over the next several months. I suggest charging gas or lunch a few times a month and then pay off to a zero balance once you receive the monthly statement – this will speed up the process and Eric’s credit will shoot through the roof.

Call me if you have any questions whatsoever.


.

[disneysteve]

Making someone an authorized user on your account does help them establish credit.

Another option is for him to get a secured credit card. That will also help him build credit.

[Like2Plan]

I have thoroughly research this. I have called, emailed, and spoken to landlords, utility companies, cell phone companies, insurance companies, and financial firms about the relevancies of credit reports and credit scores. This is not simply my opinion.

My son has a job for which he had to make several moves in the last 5 years. They always run a credit check on him when he rents an apartment.

Here is an article from Consumer Reports on Car Insurance Rates.
Consumer Reports: THE SECRET SCORE BEHIND YOUR RATES

Although, some states have made it illegal to base the insurance on credit scores. From the article (dated July 30, 2015), "California, Hawaii, and Massachusetts are the only states that prohibit insurers from using credit scores to set prices.

Personally, I disagree with the credit score being used for so many other things. It reminds me of how social security numbers were used for everything. It almost became a de-facto identity number. And, it was printed everywhere! It wasn't meant for that, but it slowly morphed into common usage.

It is almost like they want to size me up with a number so it can be digested by the machine. But, the algorithms that they use are kept secret. Credit reporting agencies are independent and beholding to no one when it comes to determining what goes into that calculation.

I've read that the trend these days is to include other factors, not just credit usage. FICO’s data scientists found that alternative data such as property records, telecommunications and utility information can reliably be used to score 15 million consumers who do not have enough credit data to generate FICO scores.
Link to the article
(But, honestly it seems kind of backwards that you could own your property free and clear and otherwise not have any debt and not be scored as a good credit risk without having to do backward flips...)

[GoodSteward]

Simply all I did was hand in my application, and I explained that I have no credit score. While I do have a credit report, and they can review my history on the report, I do not have a credit score as I have not borrowed any money recently. They accepted my application without a problem.

What rate did you get in comparison to credit? Someone with a good score, poor score? I'm curious.

[GoodSteward]

This is something I’ve thought about a lot, and overall, I feel you need a score.

The first thing to understand if you want to go all cash and become Mr Fico 0 is that you can’t just decide today to do it, and tomorrow your score is 0. A credit score is based on things you’ve done within x time. After you stop using credit actively like credit cards and loans, the time factor will still play a part bringing your score down gradually over years. So in other words, while you are on your journey to 0 land, it will be bad credit score land for years. I'm not even sure how you can hit a 0 once you are in. How long does that take? 10 years, 15?

From what I’ve seen only higher income people can make it work well without using credit. Very few people with an avg, and especially low, income can do everything, every time without credit. They will have to drive beaters and rent forever, and forever be saving cash to buy the next thing(basically in debt to the future car rather than a bank today). They can technically get a house based on bill payment only, but that will put them back into credit land when the mortgage company reports a new loan. A friend of mine got a government loan this way, and it went on his credit and built his credit up.

The only way to avoid a credit score is to only pay cash, forever. That is nearly impossible out of the gate in life. It’s easier if you already used credit to get where you are, and now pay everything off and can save up to buy things with cash, like cars. Starting out in life with this method will slow you down and postpone your financial success for years. How so? How about you have to rent while saving to buy a house with cash only. For a high earner, this may not take all that long. For the avg person, by the time you have the cash to buy a house you don’t have much time left to save for retirement because you have to pay rent the whole time you are saving for the house. This isn't impossible, but it is unnecessarily harder IMO.

Also, everything is changing to a credit based approval system. My auto insurance changed to credit based premiums within the last few years. My brother couldn’t move himself and his family out of his in-laws house into an apartment because nobody would take his bad credit. I put him as an authorized user on my regularly used credit card and his score shot up 70 points and he got an apartment. You really can’t escape this(unless you are loaded and already established). If you go cash only, you spend more money on premiums and rates typically (loans approved based on other factors are typically higher risk, therefore higher interest). *unless it is through the government where the laws of math and physics don’t apply. Case in point, my friend who got the government loan also got a subsidized interest rate of around 1%...go figure.

As mentioned above, if you had a serious debt problem going all cash for a while is a good idea, but it will only work because you are still living off the credit choices you have already made, i.e. the car that has years left you just need to pay off, or the house that needs paying off but already purchased. It seems to me the only way to do this is to first go through credit, but then step out when you make the income to do it. Outside of that, it won’t work as nicely as you would like due to the system and inflation. Inflation works against the cash system, the house you've been saving 10 years for went up 30%, making your goal take longer. So you can either save with inflation rate as your interest(lower typically), or buy today using a loan with interest, saving the rent payment.

In the end, I think the best scenario is to live within your means avoiding consumer debt as much as possible, but still have good credit for a fall back when you may need to use it such as applying for insurance, utility sign ups, moving, etc. I don’t think it is wise to burn bridges with finances, and I see dumping credit scores as doing just that.

[dczech09]

What rate did you get in comparison to credit? Someone with a good score, poor score? I'm curious.

No rate. This was a town home rental. My rent and my deposit was exactly the same as someone with a good credit score.

For people with a bad credit score, they would require a large deposit and a cosigner. They did not require this for me, though.

[disneysteve]

No rate. This was a town home rental. My rent and my deposit was exactly the same as someone with a good credit score.

For people with a bad credit score, they would require a large deposit and a cosigner. They did not require this for me, though.

In lieu of your credit score, what did they do to verify your credit-worthiness and income? Do you have to provide paystubs or bank statements? If so, was that process any different than what any other applicant would go through?

I guess the question becomes if the credit score doesn't matter, why do they even bother with it?

[GoodSteward]

No rate. This was a town home rental. My rent and my deposit was exactly the same as someone with a good credit score.

For people with a bad credit score, they would require a large deposit and a cosigner. They did not require this for me, though.

Ahh, that's good. Also, I was thinking purchase for some reason. I missed you put rental. Even still, that is interesting.

You often hear the phrase a bad score is better than no score (you see that all over), but I don't know how that helps at all. Typically, though, I'm told no score is a sign of high risk, but in turn, it also should be a sign that you are making it without carrying loads of debt, which should itself be proof of managing finances.

[dczech09]

In lieu of your credit score, what did they do to verify your credit-worthiness and income? Do you have to provide paystubs or bank statements? If so, was that process any different than what any other applicant would go through?

I guess the question becomes if the credit score doesn't matter, why do they even bother with it?

They still required a credit report pull, paystubs, etc. But they require this of everyone. I did not have to provide anything additional because of the absence of a credit score.

Why do they even pull it?

A lot of landlords do not actually pull credit themselves. They sublet that process to another vendor, who works for a lot of companies other than said landlord. The vendor typically has a "package" service that they offer their clients, and inside the package is FICO's credit score.

So the vendor pulls all of the information, including the credit score, repackages it into a nice little report, and sells that to their client company.

Basically, the landlord is getting a "canned" report that includes a lot of things. The credit score itself does not really matter to the landlord. I spoke with them myself and they even told me that they will look at the credit score if it is available, otherwise the information on the credit report itself is more of what they are interested in.

This is consistent with my research calling and speaking to other landlords and property managers. The credit score is really not the item of interest to them; the credit report is. And this is the same for many other parties...

• Insurance companies
• Utility companies
• Cable and internet providers
• Employers

They want to get a sense of how you manage your money. The credit score can be used, but its applications are rather limited. The credit report is much more informative, however.

The credit report, combined with paystubs and rental history check is what was needed for me to get approved. I was up front with them and told them that they would not be able to get a credit score on me. They looked at everything else and approved without hesitation. And this is a luxury town home with strict leasing requirements.

[disneysteve]

The credit score is really not the item of interest to them; the credit report is.

They want to get a sense of how you manage your money.

That makes sense. The credit score is based on the credit report, so really looking at the report gives you the actual info that the score reflects.

[dczech09]

The first thing to understand if you want to go all cash and become Mr Fico 0 is that you can’t just decide today to do it, and tomorrow your score is 0.

There are 5 factors for your credit score...

1. Payment History
2. Length of History
3. Total Debt
4. New Credit Inquiries
5. Type of Credit (Credit Mix)

The credit scoring algorithm can only work with what is presently on your credit report. In that sense, the credit score is merely a reflection of the credit report itself. However, the credit scoring algorithm has limitations.

A primary limitation of the credit scoring algorithm is that it only pulls information related to financial debt. Things like utility service that may show on your credit report (like it does for me) will not affect your credit score.

Another limitation is that after two years of no new activity, an account will be omitted from the credit scoring algorithm. For example, once you close a credit card with no balance, no new activity can be reported on that account. Your history with that credit card will affect your credit score for about two years. After two years of no new activity, it drops from the scoring algorithm.

Pretty much all credit items will stay on your report for seven years (10 years for Chapter 7 bankruptcy), however accounts with no new activity will only affect the credit score for two years.

If you have no new activity on debt accounts, after two years, nothing can be pulled in for a credit score calculation. So FICO (or any other scoring mechanism) will spit out a “0” or “not enough information.”

A 0 credit score does not take much time at all. Really, it just takes two years of no debt and no activity of debt-related accounts. After that, a credit score simply cannot be determined.

This two year rule is how people who file for bankruptcy are able to become good credit risks in just a couple of years.

So in other words, while you are on your journey to 0 land, it will be bad credit score land for years. I'm not even sure how you can hit a 0 once you are in. How long does that take? 10 years, 15?

With all due respect, this is simply not true. I will give you an example…

I became debt-free in December of 2013, and my credit score at that time was about 750. Fast forward two years, my credit score basically went from 750 to 0 overnight. Think about it – during those two years…

• My payment history remained the same.
• The length of my credit history remained the same (the student loan that I paid off in December of 2013 had the same payment history for the same amount of time in December 2013 as it did in May of 2014).
• My total debt remained at $0.
• There were no new inquiries.
• The mix of credit I once had did not change.

No new information was introduced to the credit scoring algorithm during those two years. Thus, my credit score remained about the same. After all, the credit score fluctuate due to new information being presented, and with no new information, my credit score could not change because my credit history was not better or worse.

On your way to 0, your credit score does not fall until it reaches 0. The change is more instantaneous.

A credit score of 0 is not the same as a good credit score or a bad credit score. It is not even playing in the same league. It is just different.

From what I’ve seen only higher income people can make it work well without using credit. Very few people with an avg, and especially low, income can do everything, every time without credit. They will have to drive beaters and rent forever, and forever be saving cash to buy the next thing.

Not having debt is what allows people to save and invest like crazy.

I used to have a car loan and many student loans. But I paid it all off. The moment I became debt-free, my net worth was about $0. Today, it is over $120K. This was the result of not having debt payments, and instead putting my money towards saving and investing.

It is not like I make a large income either. I do okay, but I am certainly not a “high income earner.”

This what I teach people to do. Work hard to become debt-free. Once you are, the laws of money will work in your favor.

Also, everything is changing to a credit based approval system. My auto insurance changed to credit based premiums within the last few years. My brother couldn’t move himself and his family out of his in-laws house into an apartment because nobody would take his bad credit. I put him as an authorized user on my regularly used credit card and his score shot up 70 points and he got an apartment. You really can’t escape this(unless you are loaded and already established).

There is a difference between "no credit score" and "bad credit score."

Bad credit score = good luck with getting approved for anything. No one wants to be a creditor to someone who has a history of not paying their bills on time.

No credit score = a creditor has to find other sources of information in order to properly underwrite your risk. And they will if they want your business bad enough. If not, you can go to one of their competitors.

If you go cash only, you spend more money on premiums and rates typically (loans approved based on other factors are typically higher risk, therefore higher interest).

I have been "cash only" for years. I have not had this problem. Then again, I also do not borrow money.

Outside of that, it won’t work as nicely as you would like due to the system and inflation. Inflation works against the cash system, the house you've been saving 10 years for went up 30%, making your goal take longer. So you can either save with inflation rate as your interest(lower typically), or buy today using a loan with interest, saving the rent payment.

Inflation will sap my purchasing power by about 3% per year. It has been lower as of lately, but on average, about 3% per year.

In comparison to most loan APR’s, that is a small price to pay. I would rather my cash be sapped in purchasing power at a rate of 3%, rather than 4%. And when the housing market (inevitably) tanks again because people overall have not learned their lessons from the last crisis, I will be in a great position to buy at a low price and ride the tide back up.

Inflation is far more adaptable for people who save for the future.

In the end, I think the best scenario is to live within your means avoiding consumer debt as much as possible, but still have good credit for a fall back when you may need to use it such as applying for insurance, utility sign ups, moving, etc. I don’t think it is wise to burn bridges with finances, and I see dumping credit scores as doing just that.

Overall, I agree with what you are saying. Having no credit score is not “burning bridges” with anybody, though. It is simply a different paradigm. It is a different way to attain financial wealth. I just move to the beat of my own drummer.

[GoodSteward]

Well, let's clarify scenarios. I'm referring to someone who isn't debt free yet and changes to cash only. You are referring to someone who is, and then makes the change. That isn't going to be the most common situation, but either way it will make a difference with how the score reaches 0. I didn't know you can hit zero in two years, but it does make sense.

Most people who go cash only are usually still in debt and doing that to get out of debt and/or avoid more of it. In my mind, as long as you have even a car or house payment you are stuck with a score until the debt is gone due to the activity it creates monthly. I don't know if it will go down too much as long as you pay ok, but it also won't be terribly high if you don't have any open credit cards, etc. If you close everything out your score will tank because your limits and history go with it.

You don't have to go cashless to save like crazy. You just need to be payment free. I use a credit card to leverage points, but I don't let the balance roll to incur regular debt (it is debt until you pay the card technically). This also keeps my score activie and up, even thought I don't necessarily need it right now.

You mentioned renting, but do you plan to do that long term?

[LivingAlmostLarge]

Apparently yes. I just had to get new auto, renter, umbrella insurance.