Your credit score is not just a random number. Rather, it is an indication of your level of confidence as a borrower. A higher credit score sends the message that you can be counted on to repay a loan on time and in full, while a lower score sends a warning that a lender may want to think twice about you. lend money.
But what if you don’t have bad credit, but rather no credit? It’s not such a rare scenario. If you are a recent college graduate, for example, who has never paid your bills directly, there may not be enough financial data on you to establish a credit score.
But it’s not just young adults who don’t have credit. Some people actively choose not to build a credit history.
Financial expert Dave Ramsey is one of them. As a strong advocate of debt avoidance, Ramsey insists that going through life without credit is more than possible. But while having no credit score may work for Ramsey, it may be more difficult for you.
Why You Might Need a Credit Score
There are ways to get by in life without borrowing money. You could save a huge amount of money to buy a house instead of having to take out a mortgage. You could save to buy a car outright and avoid having to take out a car loan. And you could forgo credit cards and just pay for all your purchases in cash.
But whether you can do these things – and want to do them – is another story. It’s easy for someone like Dave Ramsey to get by without a credit score. The reason? Its borrowing needs are probably limited to non-existent.
Investopedia reports that as of 2021, Ramsey had a net worth of around $200 million. Most of us have a net worth that is nowhere near that.
Now, if you had $200 million in assets and wanted to buy a $500,000 house, you probably wouldn’t need a mortgage either. And so in this case, having no credit score would not be a problem.
But what if your net worth is closer to $20,000 than $200 million? If so, you are in good company. And that means you may need to borrow money to finance major purchases, like a house or a car. There’s nothing to feel bad about. And it also justifies establishing enough credit history to get your own score.
Good advice, but only up to a point
Ramsey thinks debt is generally bad news and he doesn’t like to see consumers get sucked into it. In that regard, he’s onto something.
If you charge a major credit card tab, you could find yourself stuck losing hundreds or thousands of dollars in interest charges. It is not a good thing.
But not all debt is created equal. Mortgage debt, for example, is a healthier type, even if it also means spending money on interest.
Should you do everything possible to minimize your debt – and your interest payments? Absolutely. But avoiding debt altogether isn’t feasible for the typical consumer, and it’s something Ramsey tends to overlook. While you may want to follow his advice and minimize your debt, you don’t necessarily want to find yourself in a position where you have no credit rating. This could limit your options and make your life more difficult than necessary.
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