Why I Chose NOT to Have a Credit Score
Living the Cash-Only Lifestyle
It may come as a surprise to a lot of you, but yes, I have specifically chosen not to have a credit score. And that doesn't just mean low or zero - that means I have no credit history whatsoever!
If you search for the term "credit invisible," you'll quickly find that its generally regarded as a bad thing.
"Are You Credit Invisible? Here's What to Do About It"
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"I was 'credit invisible.' That made it very hard to have a life."
All you'll see are horror stories of people who have a terrible or non-existent credit score not being able to walk through life like normal adults. That's probably why so many of you are getting anxious to hear that I've specifically chosen to not build a credit history.
First off, I'll tell you that this may not be the path for you. However, if the reason for that is simply because you don't understand, I invite you to open your mind a little and let me share my side of the story.
Let me explain why I have chosen not to have a credit score.
You Have A Choice!
The operative word in this entire article is CHOICE. For most of us, the fact that we have a choice between credit or no credit was never presented.
If you were a millennial who went to college, you know exactly what I talk about when I say that you are bombarded with the message that starting to build your credit score is imperative in order to be a successful adult. I mean, c'mon, credit card companies stalked your campus and offer you free pizza in exchange for you filling out an application. That's not even to mention all the credit card offers you got in the mail.
It was probably never taught to you that you could choose not to get involved with credit from the get-go.
The important thing to understand, however, is that these are two entirely different paths.
Many people struggle with the idea of going cash only because they feel like they won't be able to rent an apartment or use a credit card in emergencies. But this is trying to fit a square peg in a round hole. You can't choose to go cash-only and then try to pay or qualify for things with credit!
Instead, you need to understand that the "Credit Path" and the "Cash-Only Path" both involve their own unique sets of benefits, challenges, and circumstances. The decisions you make on one path in order to be successful are not the decisions you'll need to make on the other.
We'll talk more about what the Cash-Only Lifestyle looks like in a moment, but first, let's talk about credit.
The Nature of Your Credit Score
I want you to ponder credit scores for a moment. What are they? How do you get them? Why do you need them?
A credit score is a measure of your ability to manage debt.
You build your score by building a history of paying back debts.
You need your score primarily to get approved for more debt.
So, basically, you have to get into debt in order to prove you can handle debt so that you can get into more debt.
How that for a cyclical relationship?
Quick disclaimer on an earlier statement - I recognize that you use your credit score for more than being approved for debt. Sometimes credit scores can be a part of an employee background check or to get approved to rent a home or apartment. However, if you substitute “credit score” with “cash balance,” you may find that this isn’t a big of a deal as you once thought!
Credit Score Calculation
Your credit score is calculated primarily by your payment history (successfully paying your accounts on time) and your credit utilization (the balances you owe as a percentage of your limits). Other factors are the length of your overall credit history, the types of credit you have, credit inquiries made, etc.
The one that matters here is the credit utilization. The typical rule of thumb is that you need to keep your balances under 30% of your limits. So, if you have a credit card with a $5,000 limit, you want to make sure your balance stays under $1,500 or your score will suffer.
However, if you have a 0 balance, you're not exactly going to have a payment history, right? So this doesn't really benefit your credit score!
SIDE NOTE: Credit companies report to bureaus at different times throughout the month. So while you may pay your balance off on the 15th of the month every month, your credit card company may have reported your balance to the credit bureaus when you still had, say, $200 worth of grocery purchases on the account. So in order to consistently have a 0 balance reported for your credit score, you'll have to completely neglect using your card altogether.
Which essentially means that you have to constantly use your credit card and have some sort of balance (and try to keep it at an amount that you can pay so you don't kill the "payment history" part of the equation) in order to successfully boost your score.
This is the logical side of credit that I didn't like. As someone who has emotional ties to spending money (read as: this girl can justify spending some serious cash), credit cards felt like a weapon I shouldn't have been given access to.
Yet, not only did they want to give me access, but they encouraged me to use it - but just a little! Not too much!
I didn't trust myself as an 18-year-old-wannabe-adult to exercise that kind of restraint.
What Credit Users Forget to Factor In
That leads me into one of the most important factors in this argument - human nature.
When we talk about the Credit Path, we talk a lot about facts and figures. We talk about the math and the interest rates and the credit score calculations.
You'll tell me that I should have a credit card that I make payments on each month and maintain a balance of less than 30% of my limit. You'll tell me to balance out my revolving credit with an installment type loan to diversify my debts, so I'll go out and buy a new car with reasonable monthly payments. My credit score will soar and now I can easily qualify for a mortgage.
But, what about the other factors in this hypothetical?
What about when I fail to book the clients I need to make my payments on time?
Or when a family crisis stresses me out so much that I take a shopping day to distract myself?
Or when my dog suddenly gets sick and has to be hospitalized for four days?
Or the time I forget to make my payment before I go out of town and I incur late fees and interest?
I find that, oftentimes, the teaching on proper credit usage neglect to address the fact that human behavior and life's unexpected circumstances are the largest contributing factors to our money management stories.
And when you leave these things out, you're basically just building a house of cards.
The "Cash-Only Lifestyle"
When I realized all of the above as a college student, I knew that the Credit Path wasn't for me. It didn't align with who I am or what I wanted my life to look like. And, quite honestly, it terrified me way more than the Cash-Only Lifestyle did.
And so I researched. I looked for a different option that would work and I found Dave Ramsey.
Many of you know who he is - he's a very popular financial expert who teaches people to get out of debt and stay out of debt. He's a strong advocate for *never* borrowing money (with the exception of a 15-year fixed rate mortgage) again and living the cash-only lifestyle.
A lot of people criticize him because "it's easy to live like that when you're a millionaire like he is." What they don't understand is that he's a millionaire BECAUSE he lived like that.
The more I learned about his story, the more I wanted to make it my own. And so my husband (boyfriend at the time), Michael, and I chose the Cash-Only Path, and in doing so, we had to commit to new circumstances that don't fit the Credit Path.
We can't rely on borrowing to dig us out of emergencies, so we aggressively built a reliable emergency fund that exceeded the average credit card limit.
We can't rely on our credit scores to get us approved for things, so we pay higher deposits and offer multiple months of payments as necessary.
We can't rely on financing a new car, so we pay ourselves a car payment each month and slowly save up to pay cash for used vehicles.
Our path looks different, and we walk it accordingly! It's truly a lifestyle change, just like any other.
I want you to take another look at those three examples of the cash-only lifestyle. I phrased them as "we can't rely," but let me tell you what that really means to me:
We DON'T HAVE TO RELY on borrowing money or financing purchases.
We DON'T RELY on others companies who, despite what they might tell you, don't have your best interests at heart (because, hello, they make all their money off of your interest payments) in order to live our lives.
We rely on ourselves to make our dreams a reality. That's the empowerment and freedom of cash flow.
That's why I chose the path that I did, even though it might have its challenges. I have to get creative, I have to stay focused, I have to accept help. I have to pay higher deposits to get an apartment, file more paperwork to get a mortgage (still possible with manual underwriting!), and wait longer to make a purchase.
But that's okay, because it's all worth it to me in the end.
I'm not telling you that you have to choose the Cash-Only Lifestyle path like I did. I'm simply telling you what I've chosen and what I teach others how to do.
Let me know in the comments - is the Cash-Only Lifestyle a possibility for you?
Until next time!