First, I’m going to start off with a confession. This post is a response to an article I found from US News. What is this article, you might ask? Well, it’s titled 5 Reasons You Need a Credit Score. This is one of the first articles that comes up if you Google “Do I need a credit score?” And we all know that Google always gives us the most reliable information, right? In reality, many of the points mentioned in this article are myths about needing a credit score.
What?! Do I dare to imply that you don’t need a credit score? Am I challenging the credit gods who say all Americans need credit to live? As a matter of fact, I am. Indeed, you do not need a credit score. So, now it’s time to refute some of the myths about needing a credit score!
Myth #1: You Need a Credit Score to Rent an Apartment
It’s true that many apartment complexes automatically check people’s credit scores. Indeed, it’s an easy and convenient way for landlords to find reliable renters. However, credit scores aren’t the only means of checking someone’s payment history.
Many landlords are willing to work with you even if you don’t have a credit score. If you can provide references, proof of a solid income, and a sizeable deposit, then most would rent to you without issue. Plus, you’ll also hear a lot of them say “no credit is better than bad credit.”
Don’t believe me? Let’s turn to YouTube for further proof. Anthony ONeal released a video where he called several Nashville-area apartments. Every single apartment said they would work with someone with no credit. Still don’t believe me? Well, here’s another video by a financial coach who does the same thing in his area.
Here’s the thing. A lot of college students rent apartments with limited or no credit history. Sure, it might require an extra deposit. But it’s an outright myth to say a credit score is necessary to rent an apartment.
A Brief Note on Utilities
As I researched information for this post, I saw a lot of people mention utilities. A lot of bloggers and articles said having no credit score could lead to paying a larger deposit while trying to set up utilities.
I don’t have a lot of research to back this up, but I can speak from experience. Before I started my debt-free journey, I had a pretty darn good credit score. I called the power company to set up my power, and guess what they required? A deposit. And it was not a small deposit. I don’t remember the exact amount, but it was over $100. Guess what I had to do when I set up my gas? Pay a deposit. This one I do remember because it was $200!!
As you can see, having a good credit score didn’t do me much good. I can’t speak for every utility company, but experience has taught me that you may still have to pay a deposit.
Myth #2: You Need a Credit Score to Buy a House
Okay, I have a couple of problems with this one. For one, this assumes that you’re not buying a house with cash. However, I’ll give it a pass on that one since most people cannot afford a house without a mortgage. Second, it’s just not true. You can totally get a mortgage without a credit score.
Once upon a time, mortgage lenders used their brains when it came to lending. They didn’t use three magical numbers to determine whether or not someone was “worthy” for a mortgage. Instead, they looked at their income, checked their rent payments, their utility payments, and any other payment history they could get their hands on. From there, they made a judgment call. This process is called manual underwriting.
In our current day and age, most mortgage lenders no longer do this. The almighty credit score is the major determining factor for them. However, there are still mortgage lenders that perform manual underwriting. Instead of going with the big banks or online lenders, check out smaller credit unions or local lenders. And, of course, you can take a look at the Dave Ramsey endorsed mortgage lender, Churchill Mortgage.
As a side note, does it bother anyone else that the word “mortgage” literally means “death pledge”? Ugh… And people still think this is “good debt”… Anyways, moving on!
Myth #3: You Need a Credit Score for your Job
Yes, many employers will do a background check on you. This is to make sure you’re a real, responsible human being. And yes, this can sometimes include taking a look at your credit report. This is especially true of the financial industry. But it’s far fetched to say that a credit score is necessary for obtaining gainful employment.
Now, there is a grain of truth to this one. If you get a job as a loan officer or a lender, you probably need a decent credit score. After all, you must like debt a lot if you intend to make a career of lending money to others. But as for me and my house, we will avoid doing business with you. And I will continue in my job that doesn’t care about whether or not I have a credit score.
All that to say, odds are your employer isn’t going to care about whether or not you have a credit score. That is, as long as you don’t have a BAD credit score.
Clarification: No Credit Vs Bad Credit
As a point of clarification, what I’m talking about in this article is having NO credit. Having NO credit is very different from having BAD credit. These myths that I’ve addressed can very much become a reality if you have a bad credit score. A bad credit score shows a history of poor decisions and an inability to repay borrowed money.
On the flip side, having NO credit score doesn’t automatically mean financial irresponsibility. In fact, it can show the exact opposite. No credit score simply means you have an aversion to debt. You can still show financial responsibility through other payments you make, such as those to Utility companies, your landlord, your cell phone bill, or other bills.
Debt-Free Life is Still Better
Once upon a time, I had a really good FICO credit score. It was somewhere around 792. However, I was broke. In fact, I had a negative net worth because I owed more money than I had. But I could borrow as much as I wanted and get credit cards with high limits! In reality, I fell victim to the myths about needing a credit score.
Having a credit score doesn’t do anything for you. It is by no means an indicator of wealth. Nor is it a full indicator of how well you handle money. It’s a well-marketed illusion to make you think you need it to survive in America. Unfortunately, like a lot of marketing, it worked.
Instead of sacrificing and working to increase your credit score, how about increasing your net worth instead? When you increase your net worth, you increase your assets. When you increase your credit score, you just borrow money that you have to repay. Stop borrowing money. Build your wealth instead. Don’t fall victim to these myths about needing a credit score.
How Do I Begin to Build Wealth?
Good Question! First, I recommend starting with a budget. And yes, you can budget even if you have an irregular income. Second, make a plan to get out of debt. My favorite way of doing it is with the debt snowball method. Third, start planning for your dream retirement!
Once you’re debt-free and have a 3-6 month emergency fund in place, start contributing 15% of your gross income into retirement. If you do so, I can almost guarantee you’ll retire a millionaire. And finally, pay off your house early and never borrow money again! Get on a proven financial plan and live like no one else, so later you can live and give like no one else.