November 8, 2010
As we've learned in the last year, your credit score is very important. It's probably too important. It's being used to determine whether or not you can get a cell phone, it's used by potential landlords to pick who to rent to, and it's sometimes used, rightly or wrongly, by employers for employment decisions. Despite the various laws governing the collection and use of credit information, it's still being used in ways they were never intended to be used for.
What if you wanted to live off the credit score grid? What if you wanted to rebel against the system and live life without borrowing a penny? It turns out that it is actually very difficult to avoid creating a credit record of yourself but you can certainly live a life without using credit at all. Here's how you do it.
Use Debit Cards
One of the benefits of using a credit card is in the consumer protections you get, from using the card and by not having to carry around quite as much cash. With debit cards, you get very similar consumer protections without having to go through the hassle of apply for credit. When you open a checking account, the bank will likely pull your credit, usually for identification purposes, but will not usually "deny" you an account because of your credit score.
You can use debit cards in place of a credit card for most of your transactions. It will come with a few additional headaches, such as pre-authorization charges. Anytime you make an open ended purchase, such as for a rental car, hotel, or gas pump charge, there will be an authorization placed on your account. The store will usually tell you how much it is and it'll vary based on the final charge. Gas pumps authorize $50, hotels may authorize one night's rate, but they all do this. This can cause a burden if the hold is for several days and you have other pending charges.
Borrow from Friends & Family
Using a debit card helps you avoid recording credit card accounts (revolving accounts) on your credit report, the next step is to avoid installment accounts like car loan and mortgages. Unfortunately, if you get a loan from a financial institution, it'll appear on your report. To avoid that, you'll need to either borrow large sums of money from friends and family or wait until you've saved up enough money to make those purchases outright. This is by far the hardest part of trying to live off the credit score grid if you want to own your home.
The alternative for lodging is to rent, which won't appear on your credit report, an apartment or house. For a car, it's easier as you can probably find a used car that you can save up for or rely on public transportation. Getting a roof over your head and wheels beneath your feet isn't hard, but owning that asset will be.
Review Your Credit Report
Even if you are staying off the credits score grid, it's important that you review your credit reports annually. Just because you don't use your report doesn't mean a potential thief won't try to steal your credit. If you aren't vigilant about your history, you are more likely to get burned if a thief does gain your credentials. If you want to check your credit score while you're at it, you'll have to sign up for a trial subscription with a service like MyFICO, run by Fair Isaac Corporation.
If you can avoid credit cards and avoid loans, chances are your credit report will look very bare. Your score will probably be pretty low since the equation won't much have information to work with. This will create some hassles in your life as your credit score is used in a lot of places you probably didn't expect (like whenever you rent something). You won't be able to get completely off the grid but these tips should help.
As we've learned in the last year, your credit score is very important. It's probably too important. It's being used to determine whether or not you can get a cell phone, it's used by potential landlords to pick who to rent to, and it's sometimes used, rightly or wrongly, by employers for employment decisions. Despite the various laws governing the collection and use of credit information, it's still being used in ways they were never intended to be used for.
What if you wanted to live off the credit score grid? What if you wanted to rebel against the system and live life without borrowing a penny? It turns out that it is actually very difficult to avoid creating a credit record of yourself but you can certainly live a life without using credit at all. Here's how you do it.
Use Debit Cards
One of the benefits of using a credit card is in the consumer protections you get, from using the card and by not having to carry around quite as much cash. With debit cards, you get very similar consumer protections without having to go through the hassle of apply for credit. When you open a checking account, the bank will likely pull your credit, usually for identification purposes, but will not usually "deny" you an account because of your credit score.
You can use debit cards in place of a credit card for most of your transactions. It will come with a few additional headaches, such as pre-authorization charges. Anytime you make an open ended purchase, such as for a rental car, hotel, or gas pump charge, there will be an authorization placed on your account. The store will usually tell you how much it is and it'll vary based on the final charge. Gas pumps authorize $50, hotels may authorize one night's rate, but they all do this. This can cause a burden if the hold is for several days and you have other pending charges.
Borrow from Friends & Family
Using a debit card helps you avoid recording credit card accounts (revolving accounts) on your credit report, the next step is to avoid installment accounts like car loan and mortgages. Unfortunately, if you get a loan from a financial institution, it'll appear on your report. To avoid that, you'll need to either borrow large sums of money from friends and family or wait until you've saved up enough money to make those purchases outright. This is by far the hardest part of trying to live off the credit score grid if you want to own your home.
The alternative for lodging is to rent, which won't appear on your credit report, an apartment or house. For a car, it's easier as you can probably find a used car that you can save up for or rely on public transportation. Getting a roof over your head and wheels beneath your feet isn't hard, but owning that asset will be.
Review Your Credit Report
Even if you are staying off the credits score grid, it's important that you review your credit reports annually. Just because you don't use your report doesn't mean a potential thief won't try to steal your credit. If you aren't vigilant about your history, you are more likely to get burned if a thief does gain your credentials. If you want to check your credit score while you're at it, you'll have to sign up for a trial subscription with a service like MyFICO, run by Fair Isaac Corporation.
If you can avoid credit cards and avoid loans, chances are your credit report will look very bare. Your score will probably be pretty low since the equation won't much have information to work with. This will create some hassles in your life as your credit score is used in a lot of places you probably didn't expect (like whenever you rent something). You won't be able to get completely off the grid but these tips should help.
Closed November 2010
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