Roman Malanke

Life Without a Credit Score

18 months ago when I moved to the US, one of the first things I was told was that one cannot live in this country without having a credit score. Until now I have been happily proving otherwise and I intend to continue to do so in the foreseeable future. In this post, I’d like to take a moment to share my thoughts on the topic of credit score, and the whole mythology surrounding it.

For my international friends, let me start by explaining what a credit score is. A credit score is a number, a rating, that is meant to indicate person’s ability to pay on his or her debts. In the US today any financial institution or anyone selling stuff on credit is using credit score as a single metric to judge how “safe” the person is to lend the money to. The bigger the number, the more likely you are to get a loan and the lower the interest rate you’ll get.

The credit score is determined using a special algorithm developed by a firm called FICO. The algorithm is supposed to take into consideration all available information about person’s interaction with debt (how much they borrow, how timely they pay back, and so on) and in the end throw out a single number, anywhere between 300 and 850, with 300 being the worst and 850 the best.

Probably the most important parties in the whole “credit score world” are the so-called credit bureaus, of which the three biggest are Experian, Equifax, and TransUnion. These are huge companies whose whole business it is to collect the information about individuals and their interactions with debt, run FICO algorithms based on that information, and then sell credit reports showing credit scores to both the lenders and the consumers who are always eager to know what their credit score is. How do these credit bureaus get all this information about people? Well, banks and other lenders give it to them.

To finish with this educational part, let me quickly illustrate how credit score is used in practice. Let’s say you came to an automobile dealership wanting to buy a car. After you agree on the price the representative asks you if you need financing. After you say “yes” he enters your personal information into a computer using software from one of the credit bureaus and few seconds later, voilà, he sees your credit score. (By the way, you will need to pay around $30 to Experian from your own pocket for this pleasure.) Then once the rep has your number he looks into his guideline and tells you on which conditions you can get a loan. Easy.

So what problem do I have with this system? Why do I need to rebel against it?

First, I don’t understand the need to buy things on credit. I’ve always managed to save money to buy what I want. In fact, I know that I wouldn’t even enjoy an item if I bought it with borrowed money. So the idea of borrowing money just for the sake of “building my credit score” sounds weird to me.

When I explain this to the people who advise me to build credit score they would tell me about all the other ways credit score is necessary in one’s life. They would say things like “You will not be able to rent an apartment”, “You will not be able to rent a car”, “You will not able able to get a cellphone”, “You will not be able to buy a car”, “You will not be able to buy a house”.

A little research and, most importantly trying it all in practice, showed that all those arguments were false. I did rent an apartment, I did get a cellphone, I did buy a car. I didn’t buy a house, yet, but I did learn that there are lenders out there who do not rely on FICO score and instead run a manual underwriting process to issue a mortgage.

It turns out, that having no credit score is not bad at all. I actually started to feel a sort of pride every time I need to tell that I don’t have one. If someone wants to know why, I will gladly explain that I live below my means, save money, and enjoy paying cash for things and services I buy. If anything, that makes me a more reliable customer, compared to someone who has a fantastic credit score, yet lives on the edge, borrowing money for everything in sight.

Now, let me address a more philosophical aspect of me disliking of the idea of credit score. There is indeed a notion formed in the US society that credit score has become a kind of universal metric that shows how reliable a person is. And although I generally like the idea of simplifying the business and using algorithms to do so, I do believe that deriving a metric solely based on person’s debt habits and then using that number almost as to define quality of a person, is totally and absolutely stupid.

A person can be honest, diligent, with great integrity, always paying their bills on time, but yet still considered an inferior customer because they don’t borrow money. This false logic is what I find worthy to rebel against. I will rebel against it in principle, and I will energetically avoid businesses that operate on such logic.

So as long as the US is a free country and people are not forced by the government to get and use credit cards in order to live here, I will continue to avoid them, and pride myself on having zero credit score. And things like peer pressure and urban mythology, oh that doesn’t bother me at all…