Let’s get straight to the point — of course you can live without a credit score. Many people make the lifestyle choice to engage with society without using credit. It’s sort of like choosing to be a vegetarian. Do you need to eat meat to be healthy? Nope. Some people would really rather not eat meat, even though it may make eating out at a restaurant or meal planning less complicated. Just as some people oppose eating meat on moral grounds, some people prefer to live without credit, and that’s fine.
But that doesn’t mean it’s easy. Without access to loans or credit cards, you’ll have to accept your need to save more than someone who has access to credit, if you want similar things, like a home or a car. Without the ability to finance big purchases, you’re going to have to have a lot of cash on hand.
Who Has Credit Scores?
Millions of Americans don’t have credit scores. FICO, one of the largest sources of credit scores, scores consumers with credit activity (i.e. credit card payments, loan payments, applications for credit) within the past six months. VantageScore, another scoring model, looks back two years for credit use when scoring individuals. If you have had no credit activity within those time frames reported to a credit bureau, you may not have a credit score.
A credit card is often a person’s first credit account, whether they got it as a student, opened a secured card or were made an authorized user on someone else’s credit card. A student loan or co-signed loan may also put someone on a credit bureau’s radar. In short: People who use credit generally have credit scores. How good those scores are depend on how well that person has managed his or her accounts, measured by whether they’ve paid bills on time, kept their debt balances relatively low and other factors.
If you’re curious about your credit standing, you can check the free Credit.com Credit Report Card, which shows you two scores used by lenders and the factors that are having the biggest impact on your scores.
The Reason for Credit Scores
Lenders use credit scores to determine how risky it is to lend to a potential borrower. If you have no credit history (and therefore no credit score), you’re an unknown — a gamble — to a lender. Having a credit history isn’t automatically superior to having poor credit, because a pattern of late bill payments and failing to meet debt obligations isn’t going to endear you to lenders, either.
A good credit score can save you money by qualifying you for rewards credit cards, low interest rates on loans and the ability to choose among a variety of loan products.
Living Without a Credit Score
If you don’t have a credit score, you can build credit by opening a secured credit card or becoming an authorized user on someone else’s credit card. Many people avoid credit cards, either because they find them too tempting or have had bad experiences in the past.
If you want to take advantage of things like mobile payments or online shopping while living without credit, you’ll need to use a service like PayPal, a prepaid card or a debit card. No matter your choice, make sure you understand the terms of the product and any fees that may be associated with them.
For big purchases, like buying a home or car, you’ll more likely than not need a lot of cash in the bank or have to opt for a less expensive property. No matter how you choose to construct your finances, either through aggressive saving, building credit or both, planning ahead is essential.
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