You Do NOT Need a Credit Score
Got a credit score? I bet you do. Have any idea what your score is? Maybe so, maybe not. Do you believe that having a credit score is necessary to make it
in today's world? Most people do, and I believe they are wrong.
To begin, let’s take a look at exactly what a credit score is and why most of us have one. A credit score, also known as a FICO score, was started by the
Fair Isaac Company (Thus FICO) to gauge a person’s credit worthiness. Your FICO score is essentially a number that tells the world how good you are at
borrowing money. Your score is determined using these guidelines:
35% is based on your debt history
30% is based on your level of debt
15% is based on how long you’ve been in debt
10% is based on how much new debt you have
10% is based on the types of debt you have
So what do all these factors have in common? They all say “Hey I’m in debt, baby!” The higher you rank on the credit score scale means that debtors can
trust you enough to give you more debt and they know you’re more likely to pay it back. But what happens if you don't have any debt? Well if you’ve been
debt free long enough your credit score will actually end up going to zero, and that’s a good thing. A zero credit score shows that you have actually
accomplished something that not many people have, and that is freedom from the shackles of debt (
Read post entitled “Slavery”)
When you’re debt free you don’t have to worry about making payments every month that are such a drag on your finances. You’re not paying extra for all the
things you buy due to interest and fees. The result is that you’re much more free to live your life the way YOU want to live it and have much less stress
because you are not a slave to the lender anymore (Read my
post for more on this) I can hear you saying now, “But Doc, what happens when I need to buy a home or a car? How can I buy those expensive things if my
credit score is at zero?” Well, the car part is easy. If you’ve made the commitment to become debt free, or you're already debt free, saving up for a car
is very simple. You just drive your present car until its paid off, then you continue driving it, put the payments in the bank and save for the next one,
and in a few years you'll have enough to buy another car (Read
“4 Steps to Getting Rid of Car Payments Forever”)
But what if you want to buy a home? Even If you're debt free except for your mortgage, a house can still be very costly. Of course the best way to buy a
house is with cash, but I'm not going to nail anybody for taking out a sensible mortgage. This is where manual underwriting comes in. Many people have
never heard about this process, and not all lenders know how to provide this option, but it’s what you will need to get a mortgage when you have a zero
credit score since you don’t use credit any more. Basically manual underwriting is a nonautomated, MANUAL process of figuring out how much a lender thinks
they should loan you. Normally the process is automated, they just stick your numbers into a computer and it spits out a number based on what the software
says. The manual underwriting process actually has a human being running the numbers to determine figure out how much to loan to you. However, there are
certain guidelines that you will have to meet in order to have your mortgage manually underwritten:
You must be able to prove that you are paying 4-6 regular bills in a timely fashion over an 18-24 month time period. These can include rent, phone,
cell phone, power, water, etc.
You should choose a 15 year conventional fixed rate mortgage.
You must have a strong employment history and predictable personal income history.
You must be able to put at least 20% down on the home.
Your previous credit history should have no red flags. Even though you have no credit score, previous history matters.
So yes, you can buy a house with a zero credit score. It’s just a different process. Of course the best way is to pay cash (I know some people that have
actually done it), but it usually takes many years of chipping away at a mortgage payment to get the house paid off and eventually pay cash for the next
one. Remember, living with a credit score, whether it’s a good one or a bad one, is a choice that you make. Do you really want to be the person that credit
card companies or lenders like to see coming? Don’t get me wrong, if you use credit you should be trustworthy with it, so don’t start stiffing your
creditors and putting your credit score in the crapper. However, the best thing you can do for yourself and your family is to start changing your mindset
about money and work your plan to pay off all your debts and
Celebrate Financial Freedom
with the rest of us who have already arrived at that wonderful destination.
"Dr. Jason Cabler is a Christian personal finance blogger, author, and speaker. He teaches how to get out of debt and live a debt free lifestyle
through his Celebrating Financial Freedom
self study course
. His new book "How to Budget- The Quick and Easy Guide to Making a Budget That Works" is now available (
more info here
). He can be reached for interviews or speaking engagements by
, and can be found on