Ask the Readers: What if You Have No Credit History?
Published on - December 19th, 2006 (by J.D. Roth) Elizabeth writes with a common question: what do you do if you have no credit history? Here’s her story.
What would you recommend for a young person who has no credit history, but would like some (without having the long-term hassle of credit cards and credit card debt) because it would make identity verification easier?
I’m a college student trying to get my savings and IRA account (started as custodial accounts when I was 11) switched to my name. However, this company needs some verification of my identity from a third party, even though I showed them my passport, they know my social security number, etc. The traditional way this third party company verifies identity is through credit history, of which I have none (having no credit cards). I could of course, get some statement billed to my permanent address and verify it via fax and paperwork, but I’m wondering if this lack of a credit history will be a problem in the future.
Also, a lack of credit history is inexcusable if you’re trying to get an apartment (where they check your credit and references from other landlords). I live in the Bay Area, and won’t be getting a house any time soon. How have other people gotten around that in the past?
To make it clear, I do not want a long-term credit card. I can’t stress this enough. I have a debit card which works fine and am presently saving towards retirement. I would still like to alleviate future hassle by proving to anonymous bureaucrats that I exist, and am who I say I am.
What about it, readers? Have any of you dealt with this problem in the past? What suggestions can you offer Elizabeth?
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Ben,
I dont care what you or anyone else say you do about your credit card balances. If you are truthful about that, great. But carrying credit cards with 0 balance is still going to show up negative on your credit report.
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joshuat,
Where are you getting this information? I have 6 credit cards, none with a balance that I carry over from month to month, and 2 of them have been dormant (no charges or payments) for over 6 months. I look on my credit report and see that the accounts are open and in good status. I look at my credit score and don’t see how it could be much higher.
Carrying a credit card with a 0 balance (and as high of a credit limit as possible) is a GOOD thing for your credit score. A big part of your credit score is your balance-to-limit ratio (aggregated across all your credit lines). If you have a balance of $2000 and a limit of $2500, your credit score will be very depressed. If you have a balance of $2000 and a limit of $20,000, your credit score will be bumped up. This is one of the topics that I will cover in-depth on my blog, hopefully this week.
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You don’t need a credit card or credit score to exist. The only way to obtain a good credit score is to go into debt and stay in debt.
Read over your credit card agreements carefully and ask yourself if you really want to do business with companies that impose those type of rules and penalties.
Obtaining a home, insurance, a job, or anything else can be done without a credit score. I haven’t borrowed any money in almost 3 years now. We have about 55% of our mortgage left to pay and that’s it. My goal is to never borrow a single dollar again in my life. I sincerely hope I drive my credit score down to zero.
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As a college student looking to build up my credit, I got one credit card and then used it ONLY to buy gas.
I picked that for a couple of reasons. First, I had a pretty fixed amount of gas that I used each month getting to and from work, etc. I knew that I could always pay off my gasoline bill, so I’d never have the problem of having to carry a balance.
Finally, with a card from a gas station — like Shell (the one I have now) — you can get rebates on gas. If you use the same gas station (company) all the time, you can save up to 5% on each gas transaction, which is pretty good with rising gas prices.
It’s a fairly safe way to build credit, because the purchases are consistent, but not so large as to run up debt.
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Lacy,
I think that that is a great idea to get a card and use it just for gas. I getting a new card that I would like to use and pay off each month (no really, I am planning on it and will make it happen). I’m thinking that if I was to start by just using it to buy gas I would get use to paying it off, plus because I had this planned I got a card that offers cash back. Thank you a lot for the idea ^_^
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I think many of the suggestions are good but ..
Not all secured credit cards report activity to a credit bureau, in other words, some of them won’t help you at all in “building a credit history” — Make sure, if you get a secured credit card it will help, if that is the choice you make.
http://www.ftc.gov/bcp/conline/pubs/credit/secured.htm
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[...] What If You Have No Credit History? – Get Rich Slowly asks his readers to answer this question and there are a lot of replies. [...]
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I think Elizabeth’s minimal credit card use plan is an excellent one. Though I also agree with the other poster to NOT close the CC account after a year – length of credit history increases credit score also. At least, that’s what the articles I read said when I was polishing up my credit score to apply for my mortgage.
Personally, I got a few credit cards in college and used them to pay for books every semester. I had the cash, and paid off the card when the bill came, but that gave me some larger charges on the account. I also used my Discover card – this was back 10 years ago, when they sent you a check each year on your anniversary for $3.22 or whatever your dividend was. I still have that Discover card, and 5 years later when I got my first car loan I asked the dealer for a copy of the loan approval letter, because it said I had “excellent credit.”
Again: great plan, and best wishes!
p.s. As a student it should actually be ridiculously easy to get a no-fee credit. Citi Card has an entire college student credit card section, and one of those will even give you rewards for a good GPA.
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I am a bit shocked as well that someone would be so irresponsible as to tell someone else to “suck it up and get a cc”. Are there hassles about not having a score? Yes. But there are a lot MORE hassles about having debt and/or using a debt instrument. Especially this day and age when you can use a debit card.
I am 37 and was as disciplined as you sound when i was your age. I started out only buying small amounts of stuff i would normally have purchased anyway. Then it grew to everything i would have bought anyway and on and on. It took about 8 years for me to realize that I was in serious debt and needed to do something about it. It just crept up on me. Not that it WILL happen to you, but it could. So is it really worth the risk?
Debt also caused me to not aggressively go after saving for an emergency fund. the back of mind I knew that i could always use the cc as an emergency fund. I also tended to buy more when I used the cc instead of cash. I got “cloned” and had my identity stolen numerous times b/c i used ccs. My life would have been a lot simpler had i done without them.
The truly responsible “adults” will live below your means. I don’t mean that to be insulting but Dave Ramsey’s right, a two-year old will throw a tantrum to get the cereal they want cuz they want it NOW. Just wait an extra couple of years until you have the money to pay cash. Surely if you’re disciplined enough to pay off the cc each month, you can do that.
And don’t even get me started about all the things that have happened to friends and family b/c someone co-signed or put someone on their account.
Why succumb to the norm? why follow the pack? Fight back and refuse to get sucked in. If you’re going to have to “suck it up”, then fight against the system instead of being such a wimp. “suck it up” by refusing to play the credit card game; live like a college student longer than your friends do and live below your means.
I am a landlord and I would never turn someone down as a tenant if they could show me they were financially responsible and that that’s why they have no credit score. Also, they’re right, you can, as i have done, get a mortgage through manual underwriting and then pay it off in 5 years. And, if I ever had a prospective employee who came to me and explained the reason they don’t have a credit score is because they don’t believe in debt, live below their means, and paid cash for their assets (I paid cash for my first small, $40k condo), then I would (oh, and HAVE) hired them on the spot. For someone, in my opinion, to have the courage to stand up for their principles and actually follow through with what they believe — well, that’s someone i want on my team.
I only make $40k, i’ve never made more. I rent out my first condo, have zero debt, a 4-year old car, and a house. I max out my savings. I have zero stress! I live like a queen with all the spending money i have each month. The best part is is that I’ll be a stay at mom in a few years. As an added bonus, the friends that made fun of me incessantly for driving a used Ford Festiva, without AC, (in Houston, mind you) for ten years, well, every single one of my has admired me and wished they had done the same. They’re upside in their cars, have no riterement cuz they kept raiding it due to some “emergency” and aren’t able to, sometimes, maintain their house like they should cuz they spent so much money on buying furnishings on credit b/c at 26 they had to have a showplace. Well, now their showplace is out of date. They’re stuck and can’t do anything b/c they’re not allowed any more credit. think it won’t happen to you? Ha. These are attorneys, pilots, NASA engineers. Now, are they all in that bad? no, but every single one of them has some major issue. I have none.
If you are truly determined to not get into debt, THEN DON’T. Work at it. then you’ll be able to retire like me before your 40 (if you want to).
there. Enough of my soapbox.
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I admire you greatly, for I have done much the same thing. Over thirty years ago i paid 12,000 cash for a small home and NEVER took a loan out against it. I also have NO debt always have plenty of cash on hand, if I want soemthing I SAVE for it. People with five times my income have nothing now due to living far beyond thier means. Not long ago it was discracful to be in debt. It was very simple, save for what you wanted, dont borrow, live with in your income. Congradulations
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I like icup’s stooze pot concept (comment no. 15) but felt the need to elaborate on his assumptions: go figure total earnings if you’re pulling from that $5K every month to pay off the card. Do not use the same money to pay off the card, or face massively diminishing returns. Make it a rule that you limit the payment on the borrowed amount to what you would put in your own savings account every month. Then you have quantifiable returns and credit in the making. Another alternative to the savings or CD account is reloaning that cash on Prosper.com. A bit riskier perhaps, but higher returns as well. Caution: If you do this too many times, your score will fall because of the multiple open accounts with maxed lines of credit.
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screw the whole credit card thing. Im in tampa, I go to college myself. i for one do not own a credit card. However, the way i built my credit was had the cable and electric bill under my name. my two roommates had the lease under their name for the apartment, i still paid.. but the cable and electric bill were in my name. that built my credit over the years. Now i dont have any problems with renting or anything like that.
good luck to ya elizabeth.. screw credit card debt. if you cant buy it in cash you shouldnt be buying it.
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Probably, I will repeat somebody else’s opinion, but… Many people deny credit cards like those who decide not to drive because they are afraid of crashes and are in the habit of drinking after 6 pm..
A credit card is a convenient tool, but it requires responsibility which many people do not have. It was just an opinion))
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Good for you… continue to say “NO!!!” to credit. You don’t need it!!!! Continue to save up for needs, and negotiate/pay in cash.
Take your $$$ to a financial institution that does not require credit as proof of identity.
Use drivers license or state id card, passport, social security card, utility bills, bank checking/savings statements for proof of id/address, etc..
Credit check for apartment – no… show copy of financial savings/investment accounts and letters of recommendation from other landlords, …. or rent from a landlord that has a brain – that can see that you are the one that is financially stable, not the person in slavery to a credit card company. Same for buying a house (when you are ready)- no credit needed just a mortgage broker that has a brain and is willing to work for his fees with a “manual underwrite” on the loan.
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I have never had a credit card in my life i pay with cash and only have living expence,we produce are own electricity and bought are house in 1982 with cash and all we pay every year is tax and insurance,now me and my wife have taught are kids the same princables as my grandparents taught me, and they are grown up and living debt free and have there own homes.we do not borrow or use credit! the money we make goes into savings,we can buy what ever we want but we choose not to. the intrest pays are living expences. we are healthy and have no stress,when my grandparents were growing up there was no credit cards. We give to the poor only and always give respect to our elders.
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With enough in my life to worry about, the last thing I need is worrying about making a credit card payment on time. I don’t need that stress. I have no credit cards and I am still breathing. Why should I pay a credit company to survive, when I am trying to make myself survive? I pay cash and if I don’t have the cash, I don’t get it. Simple as that. I am not going to make a CC company have record profits, when my grandparents had no credit. Times have changed, sure, but they change only to someone elses advantage.
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I am 43 own my own buisness and living well, my credit score is 0. i never owned a credit card in my life, and i dont rely on any credit i pay all in cash just like my parents tought me, i only purchace what i need, and i own my own home, dont owe nothing but my taxes,waterbill,heat/elect/garbage,insurance, I have my own credit and its my safe, and all mine that i have worked all my life. hope you pepole that live on credit cards dont losse your jobs, and wish you well.
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As has been mentioned you can do it without a CC. And you can do it easier than some people make it sound. Go to your bank (and if they won’t do it find a local Credit Union which probably will) and get a small unsecured personal loan (with no early payment penalty). Pay it back the next week. Yes you will be out a small amount of interest, but it will show up on your credit report as a paid load. Obviously financing a car and paying it off early (especially if you’ve saved up most of the money ahead of time) is another good way to do the same thing.
All that said, there is something goofy about their verification process as if you have a bank account you should show up with a credit history. PERIOD. And if the want a CC for verification process I’m sure you could use your debit card for that (if it has the M/C or Visa logo on it).
Do you need a CC? NO. Should you get one? Only if you want too. Can they be useful? Yes. Can they become a burden? Absolutely. Can you get credit with out one? Yes, but it may be harder. Depends on what you are willing to put up with by not having one. Of course being 2-1/2 yr after the original post, I’m guessing this issue has been resolved by the original question asker. But hopefully someone else may find it useful.
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I have to agree with post 64 and the last few. Im 20, still live at home, have 2 newer vehicles and many toys paid for in cash. NEVER had any cc or debt. Im currently saving up to buy a house in the next 2-3 years. Having debt is NOT the way to go, though sometimes unavoidable. My friend has a cc and you would not believe what he pays every month just in interest. My parents taught me that if you can’t buy an item with cash, then you can’t afford it. They have zero debt except utilities, and they have an above average lifestyle. Credit cards are convenient, espesially in an emergency. however, there is no right/wrong answer to getting one. It depends on your life situation and standard of living.
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DO NOT GET A CREDIT CARD. I am pushing 50 and have never had a credit card. I feel if you don’t have the money for something at the beginning of the month – then chances are that you won’t have it at the end of the month. If you think you will have the end of the monty – something may happen and then you will have to put it off until next month. You know how the credit snow ball ripple effect works. The $100 dress eventually cost $150 or more.
I like to use pre-pay credit cards especially on-line. I have never had a problem with them.
Howeve there is one sad thing about not having a credit card – many hotels and such places want you to have one in order to book a vacation or trip.
In the long run – if you can live without a credit card – do it Elizabeth!!!
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