This article is by editor Linda Vergon.

Gina Bean wrote in about her friend’s credit situation. Her friend has a car loan with a $936 balance. She doesn’t have a credit card – because she only earns $21,000 a year and doesn’t want to go into debt. But she’s frustrated because she recently checked her credit score and it was 583. She recognizes that the late payment she made on the car loan would bring down her credit score, but she was surprised to learn that it was also lowered because she doesn’t have a credit card.

“… honestly, I have NO DESIRE to have a credit card!!! So any advice would be very much helpful. I am at a loss right now! Do you have any advice for people with bad or no credit scores and how to function in society? [Are there] any resources to address this topic?”

Last June, we asked the readers How do you monitor and improve your credit?, but we haven’t asked how you can function with bad credit or no credit. And while Gina’s friend’s credit will improve naturally over time (as long as she continues to make timely payments), she still has to make it to that point somehow because life comes at you whether you have credit or not.

One plan of action

  1. First and foremost, Gina’s friend needs to put an emergency fund together so she can handle what life throws at her. People find it easier to respond to an emergency if they have a credit card to fall back on; but since that’s not the case, she definitely needs to make an emergency fund her first priority.
  2. If she hasn’t already done so, her friend needs to scale back on her lifestyle wherever she can. Perhaps she can start tracking what she spends so she can get a real look at where her money goes. Another good move in this direction would be to create a budget – but in any event, the more discipline she can bring to her finances, the better.
  3. The discipline is important because she needs to start saving for the larger purchases she will need in the future. For example, we have no idea how reliable her car is; but it’s a sure bet that she will need to replace it somewhere down the road. If she can arrange her life so that she earns more than she spends, she can start to save money for bigger purchases like a car.
  4. If her friend’s credit was lowered because she has a limited credit history, she may want to rethink her decision to swear off credit cards in the future. She can search for a secured card that reports the activity to all three credit bureaus every month. That way, she can work to improve her credit without much temptation to go overboard.

Most people want good credit so they can purchase big-ticket items – on credit – without having to wait to save up for them. But Gina’s friend doesn’t seem to fit that description. I think she may have other reasons to be concerned about improving her credit, like reducing her insurance premium or not having to keep funds on deposit with her utility provider. She may even live in a state where her credit could factor into an employment situation. Whatever her reason, improving her credit score is a good goal to work toward. Meanwhile, she needs a way to navigate through life’s challenges.

Aside from continuing to make timely payments and not making any more purchases, what advice can you offer about how to function with bad credit or no credit?