Do you, or someone you know personally, have a ZERO credit score like Dave Ramsey talks about? - Page 2

[heymama1plus1]

Originally Posted by mnnice 

DH and I have had no debt since 2007 (and haven't applied for any new credit since about 2004) but when I ran a report a couple of months ago it still plenty of items that show up.  On mine utilities did show up and so did the name of my cell phones provider. Since I don't plan on getting rid of either of these anytime soon I don't think I'll get to Zero credit like my old man.

Good for your dad!  Gotta love those old farmers.....

I think even if I closed the credit card and paid of the mortgage today, I'd never have a blank credit report... there's 20 pages of stuff on there!  And it's all from over 6 years ago!

Originally Posted by Delicateflower 

 I don't understand why having no credit history would be a good thing. 

Someday my mortgage will be paid off, and credit card companies are such %#&$^@* that I'd love to close it based on principle (I only use it a few times a year to get a good FICO score).  So if my plan works out and I live by my principles I'll have no debt and no credit, not because I think it's great but because that's the end result of my plan.  Hopefully.  Too bad FICO can't see beyond their formulas for people who operate on 100% cash.  

[mum4boys]

Originally Posted by Delicateflower 

No score is the same as a bad score. You get bad rates, they require huge deposits and getting credit is very difficult.
 

Somewhat, they also use your history with them so your rates do drop as the time you've held the policy increases. But you're tied to that company. I don't understand why having no credit history would be a good thing. It's like people who don't get birth certificates for their children, you don't realize how much use it is because it's so automatic. The utility deposits with no credit score are no fun. It's just plain irritating to have more than $1000 tied up in nothing at all.

A credit score is not based on paying interest. You can have a great credit score without having any debt at all.

Sorry I meant to say debt.

What your credit score is based on:

 How is your FICO score determined?

• 35% of your score is based on your debt history.
• 30% is based on your debt level.
• 15% is based on the length of time you’ve been in debt.
• 10% is based on new debt.
•  10% is based on type of debt.

Originally Posted by ChristyMarie 

First, I didn't say no job, I said no income.  Not everyone's income is tied to a traditional job.

Second, so if you have $10 in the bank and a child in the hospital and your emergency fund is depleted so you have access to $10 in all the world BUT you have a house valued at $500K just sitting there, you wouldn't take out a mortgage to access that cash until it sold?  Really?  You'd be without transportation of any kind, scavenge for food and allow the ....state?  ...foster system?  ...other taxpayers?  to take care of your sick child because you won't take out debt?  That's a very naive, black and white view of the world.  Works for making absolute statements on a message board but not so much in real life when you are faced with tough choices.

 No, I am not going into debt. Is that statement hard to understand? We only spend within our means. For us that means what we can pay for cash in hand. If we do not have the cash then we do not buy it. It is that simple. How do you equate that I was unable to take care of a sick child because I would not take out any debt? What we did is lived within our means. We not only managed we thrived because we did not have to worry about how we were going to pay back any debt we had incurred. We did not have declare bankruptcy because we could not afford to pay back what we had borrowed. If we could not afford to pay for those expenses then, how the heck can we afford to pay for them at a later date with interesting incurring?  It works in real life because we have been there before as we do have a special needs child. We did use to charge gas, food etc. when things looked grim. We ran up a lot of debt. Debt that was considered necessary at the time. We choose to no longer live like this. Not only are we not living like that we have done it now for over a decade. Not only that we have gone another step and have chosen to live off of one income. It is pretty hard for some people to fathom that we can make it without any assistance but we do just fine. There is a heck of a lot less stress in our life because of it.  It is funny how some people take this statement very personally like it is a direct attack about how they handle their finances. No where did the OP or I say that other people have to live this way. Again, we choose to live this way and it is very workable. 

[physmom]

Yes and it sucks. :(  I moved abroad almost immediately after college (I went to a college that between scholarships and what I earned during summers I could pay off in full).  I did have a credit card in college but never used it.  Anyways, when we moved back to the US I had no credit  and DH had never lived in the US so he didn't either.  It was HORRIBLE.  We couldn't get cell phones (had to pay $400 in a deposit that they held for a year), no one would rent to us, and we had to pay all for furnishing an entire apt from scratch  out of over savings (i.e. we were really living with the bare necessities). 

I can see how this would be realistic if you lived in the same place all your life or if you had a ton of money but otherwise I'm baffled how other people could do this without a ton of added stress. 

FWIW, we just went through THE EXACT SAME THING after moving to a new country recently.  It's great that we don't have any debt (and have never had any) but let me tell you sometimes I wish I HAD taken out a loan in college just so I would've had some credit (and isn't that ridiculous the way it works? but that's another rant).

[beanma]

physmom, I have friends who have recently been in a similar situation. They're very frugal and have no debt, but they had to move out of their rental (it was sold) and were looking to buy a house themselves, but because they had no credit (also no debt) they couldn't qualify for a loan. They're renting for another year and trying to build up their credit rating so they can buy next year.

[physmom]

Originally Posted by beanma 

physmom, I have friends who have recently been in a similar situation. They're very frugal and have no debt, but they had to move out of their rental (it was sold) and were looking to buy a house themselves, but because they had no credit (also no debt) they couldn't qualify for a loan. They're renting for another year and trying to build up their credit rating so they can buy next year.

That's almost our exact situation at the moment.  We'd actually save A LOT of money if we could buy  but we have no credit so it won't happen for awhile.  So in the meantime we're working on saving up a hefty down payment.

[mum4boys]

You do not need credit to get a mortgage. You just need to use a place that manual writes their mortgages. Yes places like this exist in the USA.

We rent (we will pay cash for our house if we do buy) and we have lived in 3 different areas of the USA. We have had no problems getting a rental because we have never rented from a corporation since we have gone debt free.  There are a lot more landlords out there that do not prescribe to a credit score as a way to determine if you are worthy to live in their home.

Being debt free/credit free requires a different way of thinking. It is not going to work if you still keep your traditional beliefs about debt. You also have to want to do it.  It does not take tons of cash to be debt free. It just takes a desire.

[karne]

Originally Posted by mum4boys 

You do not need credit to get a mortgage. You just need to use a place that manual writes their mortgages. Yes places like this exist in the USA.

.

I'm curious about these places.  Can you be more specific?  Are they established companies or bank?  I'm wondering how it works, interest rates, etc.  Before the housing crash, no-doc and low-doc mortgages were common, which I guess is different from a strictly no credit mortgage proposition, but I don't think those are very easy to obtain any longer, and are generally frowned upon.

[physmom]

Originally Posted by karne 

I'm curious about these places.  Can you be more specific?  Are they established companies or bank?  I'm wondering how it works, interest rates, etc.  Before the housing crash, no-doc and low-doc mortgages were common, which I guess is different from a strictly no credit mortgage proposition, but I don't think those are very easy to obtain any longer, and are generally frowned upon.

FWIW, we have yet to find any banks that would do that.  We also lived in a part of the US that would not rent to you if you didn't have credit (well, you could but you'd have to pay a years worth of rent ahead of time, which was definitely NOT feasible for us).  I would guess you'd probably have this more in smaller towns or if you had banked at a certain institute for a number of years.  For a couple coming abroad without any banking history there would've been no way they would've done that for us. 

[mum4boys]

Originally Posted by karne 

I'm curious about these places.  Can you be more specific?  Are they established companies or bank?  I'm wondering how it works, interest rates, etc.  Before the housing crash, no-doc and low-doc mortgages were common, which I guess is different from a strictly no credit mortgage proposition, but I don't think those are very easy to obtain any longer, and are generally frowned upon.

Churchhill mortgage is the one Dave Ramsey recommends: From his site:

• Put at least 20% down on your home.
• Choose a 15-year, fixed-rate conventional mortgage.
• Have a strong employment history and personal income to support the loan.
• Demonstrate 4–6 trade lines that span 18–24 months. These are just regularly recurring expenses such as rent, electric bills, water bills, cell phones, etc.

Also, your old credit history has to be in good shape. Even if you have a zero score, the old history is still there and impacts the loan decision. If you have an old history of late or missing payments, then you could have some problems.

We knew a couple that did this locally. I am pretty sure they used a local bank in Seattle, Home Street Bank. They had VA and did not have to put anything down. I have no idea what their credit score was but they were debt free and no credit cards.

[Caneel]

Originally Posted by beanma 

physmom, I have friends who have recently been in a similar situation. They're very frugal and have no debt, but they had to move out of their rental (it was sold) and were looking to buy a house themselves, but because they had no credit (also no debt) they couldn't qualify for a loan. They're renting for another year and trying to build up their credit rating so they can buy next year.

We have a friend of the family who is also in this boat.  Niether husband or wife ever had a loan. They rented a house, utilities included, from someone they knew.  According to the bank, they have zero credit history.   They are looking to buy a house but can't get approved for a conventional loan.

Now they are looking at small, local independent banks (there are still a few in the area) that keep mortgages in-house.  Unfortunately, they will be paying a higher interest rate and will have a shorter amortization period then if they could qualify for a conventional loan.

Off topic rant - I used to work at a bank and would review credit reports daily and I think the systems is crap.  I would see people with very high incomes and little debt with medium scores and then someone with $35,000 in credit card debt with an income of $50,000 with an over 800 score.

[velochic]

I think the disconnect is that a lot of people see "credit" and "debt" together as basically being the same thing.

They're not.

You can certainly live within your means and UTILIZE credit to increase your net worth.  This is the positive aspect of credit, where you are never paying any interest, but you are using other people's money while making a profit off of it.  I'm not talking about risk with investing, either, or even leveraging or anything of that nature.  I'm talking about simple things like 0% interest incentives.  You have the cash to buy the item, but instead of paying upfront, you let it ride on a year-same-as-cash and collect the interest from that money that would have been spent.  You pay the "debt" off before it rolls into these outrageous loan terms, but you've let your money make you money for the last year.  You're $2,000 ahead of what you would have been if you had just paid cash for it.

The problem, though, is that too many people DON'T think in these terms.  They buy things they really can't afford.  Then it's bad to have that credit because there is no discipline to keep it in check and that leads to bad debt.

What I'm talking about is *also* a mindset.  If you live on cash alone, you are likely not going to get ahead with your finances.  If you EXPLOIT your credit and acquire debt, you are not going to get ahead with your finances.

I truly cannot imagine living without credit.  It has been a part of our financial freedom.  But it has been used wisely.

[ameliabedelia]

My parents do.  They have never had a single debt (no mortgage or anything).  I think it did affect them when they went to purchase cell phones and get a plan, but I'm not sure how.  They were still able to get the phones and the monthly plan.

[physmom]

Originally Posted by ameliabedelia 

My parents do.  They have never had a single debt (no mortgage or anything).  I think it did affect them when they went to purchase cell phones and get a plan, but I'm not sure how.  They were still able to get the phones and the monthly plan.

You have to pay a deposit.  We paid, for instance, $400 and they kept that for a year (if you are late at all then the amount that they wait to give you the money back is the amount of days you were late). 

[kythe]

Jumping in here...  This is a very educational thread. :)

Originally Posted by mum4boys 

What your credit score is based on:

 How is your FICO score determined?

• 35% of your score is based on your debt history.
• 30% is based on your debt level.
• 15% is based on the length of time you’ve been in debt.
• 10% is based on new debt.
•  10% is based on type of debt.

What does this actually mean?  The first two are fairly self explanatory, but how does length of time in debt affect your score?  Does this mean the length of time you've had a credit card or the length of time a particular debt has been on the card?  How does this differ from the "new debt" category, since it also has to do with length of time?  How long is it before a credit source, such as a credit card, isn't considered "new" anymore?

[swede]

Originally Posted by mum4boys 

Sorry I meant to say debt.

What your credit score is based on:

 How is your FICO score determined?

• 35% of your score is based on your debt history.
• 30% is based on your debt level.
• 15% is based on the length of time you’ve been in debt.
• 10% is based on new debt.
•  10% is based on type of debt.

 No, I am not going into debt. Is that statement hard to understand? We only spend within our means. For us that means what we can pay for cash in hand. If we do not have the cash then we do not buy it. It is that simple. How do you equate that I was unable to take care of a sick child because I would not take out any debt? What we did is lived within our means. We not only managed we thrived because we did not have to worry about how we were going to pay back any debt we had incurred. We did not have declare bankruptcy because we could not afford to pay back what we had borrowed. If we could not afford to pay for those expenses then, how the heck can we afford to pay for them at a later date with interesting incurring?  It works in real life because we have been there before as we do have a special needs child. We did use to charge gas, food etc. when things looked grim. We ran up a lot of debt. Debt that was considered necessary at the time. We choose to no longer live like this. Not only are we not living like that we have done it now for over a decade. Not only that we have gone another step and have chosen to live off of one income. It is pretty hard for some people to fathom that we can make it without any assistance but we do just fine. There is a heck of a lot less stress in our life because of it.  It is funny how some people take this statement very personally like it is a direct attack about how they handle their finances. No where did the OP or I say that other people have to live this way. Again, we choose to live this way and it is very workable. 

NOt taking this personally , at all (we have no debt except for our very reasonable mortgage), but what if your child needed life saving immediate surgery that you couldn't pay cash for?  I am not talking about an "optional treatment", but a surgery.   Would you really not get the surgery done on credit?  

[Aridel]

Originally Posted by swede 

NOt taking this personally , at all (we have no debt except for our very reasonable mortgage), but what if your child needed life saving immediate surgery that you couldn't pay cash for?  I am not talking about an "optional treatment", but a surgery.   Would you really not get the surgery done on credit?  

Exactly.  It's one thing to say that funding private speech therapy, or consults with doctors who may or may not be able to help isn't worth going into debt.  But if there was a sudden emergency, you can't guarantee that you could pay for it - and if you have the resources you may not qualify for a payment plan or charity care through a hospital, since they expect you to do what you have to do to pay everything possible and more.  We're not talking about daily vitamins or pushing the time limit on when a kid needs new glasses.  I mean, if my dd suddenly had to have life-saving medication or we were in a car accident and she needed surgery, there's no way I'm standing on principle not paying for it.  What that gets you is in more debt, since then you owe the hospital for whatever procedure, and they will report if you don't pay it.  It can be easier to pay for a house in cash than to cover unexpected medical bills.  A preemie baby can run into millions before they hit a year old.

There are children out there who require tens of thousands of dollars in medical expenses every single month to keep them alive - take a child who is on a ventilator, with a trach, a G-tube, and then of course the associated tubing that has to be changed, gloves, medications, special formula, visits to the doctor, additional transportation costs due to increased travel and the need for specialized seating - it goes on and on and on.  And any kid could become a child requiring intense medical intervention - a car crash, a fall, choking on a bit of hot dog or near-drowning in the pool or tub.  Anoxic event --> brain injury --> medical bills  I'm not fear mongering, it's unlikely for it to be your child, or my child, but it happens to kids every year.  If you're not willing to go into debt, and you don't have tens of millions of dollars, you can't afford those kinds of bills, even with stellar insurance.  And pretty much nobody out there will let their child die instead of taking on debt.

Of course, whether the burden of paying for complex care for medically involved children should fall so hard on the family is another issue, but the world is what it is.

[lookatreestar]

my dh has a zero credit score... it was like he never existed in the credit world. he paid everything in cash for years, on time and everything. he paid all cash for his cars as well. we just got him a secured card (mine treated me well) and hope to get him on the board. i think one cc per person is enough in this house hold, and maybe a mortgage but that is the extent of debt i'd like to incur.

[Geist]

Having no credit score really does make buying things more difficult. When we went to buy a house, we had major issues since my husband is an immigrant and has only been here for slightly over 3 years now, so his credit history here wasn't long enough (it was fine in his home country, but that doesn't count). We didn't get him on my credit cards as soon as we should have (like, immediately after he immigrated) because we just didn't think about it. So we've ended up getting higher interest rates than we otherwise might have. He also likes to point out--and I think this is entirely true--that the way credit scores are figured in the US is completely bizarre. Here, you can only get good credit by having had a lot of debt. In Finland, you get a good credit score by having a lot of money. He was so proud of the fact that he'd had a credit card (with a ridiculously low limit compared to what I had in the US) since he was 20 because it showed that the banks there trusted him and he had money.

Also I would add that nowadays, buying things like cars and houses and even appliances with cash makes you a terrorist: http://theintelligencer.net/page/content.detail/id/548851/Buying-a-Car-a-Little-Harder-Now.html?nav=515

or according to the if you see something, say something video by DHS, if you don't have a credit card while renting a room at a hotel and you want to pay cash, that could make you a terrorist, too, and it's suspicious behavior.

[Arduinna]

I've never heard of a 0 credit score, having said that I lived for years without any credit accounts.

[HollyBearsMom]

my nephew has never had his credit checked so not sure if it is zero but he is 35 and has been living off the grid since he finished college.  His tuition was paid in full/cash by his parents. His jobs have always been under the table, his does not have a bank account, has never rented an apt in his own name or paid for utilities. He has been back in the states for about 7 years but spent much of his adult life traveling thru India, Thailand, Vietnam. He still travels about 6-8 months a year, most recently in South America. His time in the US is spent living in a yurt on some land he bought years ago (he was 18) and/or bunking with friends.