Living With Bad Credit is One Thing, But Can You Make It in Life With NO Credit?

If you want to live your life without ever using credit—which means no loans and no credit cards—get ready to do a lot more transactions in straight cash.

We often write about bad credit. How you get it, how to manage it, and how to get rid of it. But what if you don’t have any credit at all? Humans aren’t born with credit scores and it is totally possible to get well into adulthood without one.

But can you have a successful life without a credit score in this day and age? And if so, how? With the help of our experts, those are the questions we’re going to answer for you today!

Let’s get the basics out of the way.

As we always like to do when we talk about credit, let’s cover what exactly a credit score is and how you might end up without one. A credit score is a three-digit number that determines how likely you are to be granted a loan and with what terms.

That number is generated from information in credit reports maintained by the three major credit bureaus: TransUnion, Experian, and Equifax. Factors in your score include payment history, amounts owed, length of credit history, credit mix, and recent credit inquiries.

But what if you never use credit? If you’ve never taken out a personal loan or used a credit card? Well, then you might not have a credit score at all. And where exactly does that leave you? Can you just go through life without borrowing any money whatsoever?

Living well without credit is certainly possible.

We’ll be straightforward here: Many things in life are much easier when you have a good credit score. But lacking a credit score doesn’t mean you’ll be forced to go live in the woods. You can theoretically live your life without having any credit to your name. In fact, we heard from someone who did just that!

“Up until two years ago, I had zero credit,” recalled Mikhail Shvartsman, in-house counsel for USB Memory Direct (@usbmemorydirect). “I never opened a credit card, I bought pre-owned cars outright, and bought my house on foreclosure. You can’t possibly live without credit unless you buy your own assets.”

But as Shvartsman implied, you’re going to have to live your life in a very specific way if you’re hoping to get by without credit. He eventually found himself in a situation requiring a change of gears:

“After finishing law school, I had $200,000 in student loan debt. So why did this change my need for credit? I had to lease out my apartment and find a place closer to work. Credit helps you manage when you pay for things. You still have to pay all of your debts, but this way you can do it over time.

If you plan properly, and have a large enough salary, you can do this without the assistance of loans and credit cards. Regardless of my effort to do this, when it came time to rent an apartment closer to work, I knew I had to work on my credit.

“With just a $200,000 debt posted for my student loans, it took me two years to create a credit history enough to score me over 600. For you to survive without credit, you have to manage your own finances by saving at least 10 percent of your income each year. However, if you are not making enough to make ends meet, that is not likely.”

“The most important part is making sure 10 percent of your salary is enough to cover unforeseen costs. If you don’t own your own house, this is unlikely. When leasing or renting anything, lack of creditworthiness will often deter anyone from renting to you.

“In this case, without credit, you would have to be able to pay your rent for a year up front. If you do, then you still shouldn’t rent. You should use that money as a down-payment to own your property. In reality, the best practice is to build your credit, and not use it unless needed.”

Want to skip credit scores? Then get comfortable using cash.

Kalen Omo, of Omo Financial Coaching, gave us a slightly rosier idea of living without credit:

“I believe people today can absolutely live without a credit score. If mom and grandma could do it, why can’t I? As long as cold hard cash is the primary mode of payment for goods and services, you can live without a credit score.”

Omo went on to offer some common issues you might run into when living without credit and how you could handle them:

Buying a home: The best way to buy a home without a credit score is either through a process called manual underwriting, the way mom and grandma used to get mortgages, or the one hundred percent down plan (aka buy a house in cash).

Buying a car: If you’re wanting to buy a car, the best way to do exactly that without a credit score is saving up your money over time and buying it with cash. Also, because you are a cash buyer, you are also in a better negotiating position with the dealership, as you have walkaway power, and are not held to a car loan or its interest rate.

Renting a car: The best option is to do your research and find a rental car company that takes a debit card instead of a credit card. You may need to have a deposit put on your checking account, but as long as you bring the car back in the shape you left it in, you’ll get that back.”

So to sum it up, your life is going to look a lot like a cash-only venue.

But if you do want to fix it

As we said above, life will be easier with good credit. Even Shvartsman, who was doing really well with no credit history, eventually hit a point where he needed a decent credit score. But how can you go from no credit to good credit?

One of the most reliable ways is to get a secured credit card. That’s a credit card that requires a cash collateral but is much easier to qualify for. Then you just have to use about one-third of your credit limit each month and pay your bill in full and on time.

Here’s something that WON’T help your credit: Taking out a predatory payday loan or title loan. These are no credit check loans that almost always go unreported to the credit bureaus. (You should watch out for cash advance loans, too.) However, there are bad credit loans out there that do get reported to the credit bureaus, so keep your eye out for one of those—especially if they’re installment loans.

Life without credit isn’t impossible. But you’ll probably have an easier time if you start building up your credit now. To learn more about how you can improve your credit score, check out the rest of our Know Your Credit Score blog series:

Have you or someone you know chosen to live without credit? We want to hear from you! You can find us on Facebook and Twitter.

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Kalen Omo is the founder and owner of Omo Financial Coaching. Kalen has been in the world of personal finance since 2010 and has earned the title of Ramsey Solutions Master Financial Coach in 2017, after completing training with Ramsey Solutions, the company owned by National Best Selling Author and Financial Expert, Dave Ramsey. Kalen works with people’s personal finance issues and pain points ranging from budgeting to dealing with debt collectors to bankruptcy to estate planning to retirement. In his spare time, he enjoys spending time with his family, playing music, and is an avid musician.
Since Mikhail Shvartsman was a kid, he has loved fiddling with computers. Before law school, he worked in technology as a web developer, system administrator, and even worked in the realm of online marketing. He currently works as the general counsel of USB Memory Direct (@usbmemorydirect). Navigating the law for an electronics wholesaler and manufacturer allows him to grow his knowledge in both technology and law.

The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.