Apr 07 2009

No credit score shouldn’t equal a bad one


My friend, B, has a steady job with a good income. In her mid-20s, she has no debt. She has paid all of her regular expenses on time and makes sure to set aside money for savings. She’s a perfect example of someone with good financial sense.

There’s just one thing that’s driving her bonkers lately: She has no credit score. Not a low score — no score at all. She doesn’t have credit cards and hasn’t taken out any loans that would show up on a credit report.

She has made it a point to live within her means, and wanted to avoid the perils of debt.


Yet, she’s finding that she is having a difficult time renting a car, obtaining a cheap cell phone/contract, and more, simply because she doesn’t have a credit history. Sometimes, people without credit histories find that they are paying higher car insurance premiums.


Not fair!


B has no desire to take on debt, but she certainly would appreciate less hassles at the car rental place. She has applied for credit cards and is being turned down. Even store credit cards and a card from her own bank are sending her rejection letters.


Maybe there’s a credit card she can get (probably one with an annual fee or something). I hope she won’t have to find a co-signer to get a credit score rolling. Suggestions, anyone?


A person with no credit is not the same as a person with bad credit. And yet, those with no credit history are being lumped in the same category.

Why is it that it’s simple for a college student with limited or no income to get a credit card, but it’s all but impossible for a responsible, hard-working person to get approved?
Because the college student will likely make the credit card companies money, and lots of it. The responsible person is probably going to pay off all debts as soon as they’re accrued, thus never paying interest.
Ever notice that you have to be in debt to have a really good credit score? It’s a buncha baloney.
Since we’re still making car payments, my credit score is holding solid. But once we’re out of debt, I’m sure our score will fall. When it comes time to get a mortgage, we’ll get a higher interest rate unless our score is good. Not cool.
I haven’t decided if I’ll start using a credit card to pay something routine, such as my car insurance premiums or electric bill or something like that.
Maybe it’s better to just play the credit card game so you’re not totally sidelined.
What are your thoughts about credit scores? What would you suggest my friend do?


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Posted under Uncategorized | 20 Comments »

20 Responses to “No credit score shouldn’t equal a bad one”

  1. My thought on this is that she should get a credit card and make purchases with that – which would normally be paid with cash or a debit card. She should be sure that after she makes the purchase, that she puts that money aside/in her bank account, whatever makes sense to her, and then when the bill is due, she writes out a check and the credit card is paid in full. While you are at it, try to get a credit card which “pays you back” – you earn points with purchases that you make and then can turn it into cash or a gift card or whatever. Although a low interest rate is nice to have, but if she is going to pay it off every month, it really does not matter.

    We do this, and I suppose that it helps our credit score – we mainly do this to earn the points on purchases that we would be making anyway.

    This is kind of what you were saying at the end of your post. I am not sure if it would help the credit score, but it might.

    Promises Fulfilled’s last blog post..A Different Vacation

  2. I totally agree, it’s ridiculous! We’ve had the same problem. My parents (and most everyone, really) discouraged me and Jordan from getting credit cards in college. We wouldn’t have abused them, but ended up not getting them–which it turns out was foolish. We got married at 20 and by the time I was graduating a couple of years later, we wanted a house of our own. (The rental places around here are pretty crappy.) The ONLY thing that saved us was something that most people would consider a poor financial decision. We were “invited” to a business pitch for a discount travel program and decided to buy it. We didn’t have the lump sum, so we agreed to pay $38 a month until it was paid off. Not only have we enjoyed taking cheap trips with the plan, but to our surprise, it showed up on our credit report when we were trying to get our house. If we hadn’t had that program, we probably still wouldn’t have our house! We are still paying it off, but it was WELL worth it if only for our credit. We did get credit cards to just charge things and pay off right away, but I hate the feeling of charging things. It’s easy for two people with the same account to have a breakdown in communication and end up short on cash at the end of the month.

    I think that to be fair, a person’s credit score ought to consist of utility payments and things like that. We thought it did, but found out pretty quickly we were wrong! Every high school should be required to offer a personal finance class for seniors. It would have helped me and Jordan, as it’s not easy to learn to function financially in this backward society.

  3. Oh man! What a well-timed post! I’m getting hit with the same problem. I’ve been on my own for slightly over 4 years now. I have been renting an apartment for 4 years (and my husband for 3 years). We have always paid our utilities on time. We took out school loans – we had 4 all total when all was said and done (plus 2 in our parents’ names). We have paid off all the loans except two, which we still continue to pay now. We bought a car and paid it off in less than 2 years. Neither of us have ever had a credit card, or financed any purchase (except for the car).

    We have been working with a realtor and a mortgage company about trying to buy a house. We found out today that we aren’t going to be able to get the house because our credit scores aren’t high enough to allow us to put a lower down payment (the house needed about $7k of work, so we had to make sure to save enough for that in addition to down payment). We are both really frustrated. Dave Ramsey says that paying rent for a year is enough to build your credit score. NOT so! My husband is REALLY against credit cards so we don’t really know what to do. I guess just save until we can pay cash for a house? It’s frustrating. (I just wish that houses were at a price where that goal is achievable!)

    ashley @ twentysixcats’s last blog post..back, and shivering

  4. I’m no expert in this area, but I would recommend the following. Get a credit card (with no annual fee) and pay it off each month. You can use it to have your utilities direct billed or something else benign so that you don’t get tempted to run up the balance. Do this for a few months and you should start to see your credit score increase. While it’s tempting to make a blanket statemen to be “against credit cards,” I think that what most people are really against is running up big balances that they can’t pay off!

    Good luck!

    Jorge’s last blog post..Independent Minded

  5. Hi Kacie,
    When I was in college (at Indiana incidentally) my parents had me take out a loan for $5,000 from their bank, I put it into another savings account and paid it back in six months. This helped me establish credit without having credit cards. I’m not entirely sure what the interest was, but it had to have been low, and the interest made from having the money in savings must have covered some of that. But your friend should talk to her bank and see what kind of small short term loans they would be able to give her.

  6. I had to have my parents cosign on my first card for this exact reason. But what if you don’t have willing family? I always thought this was unfair.

  7. wow – i had this exact problem. i graduated from college debt-free, but without a credit card. figured i’d need one for when i’ll be applying for mortgages.

    to the folks who mention “get a credit card” as the solution – it’s not nearly that simple. i’ve responded to mailings i’ve gotten for “preapproved” credit cards and been denied. i applied at my bank and citibank. i applied at j. crew, banana republic, macy’s, bp, and other stores. every time, i was turned down because i didn’t already have a credit score. it seemed ludicrous. how was i to develop a credit score without getting a credit card, but then, how could i get a credit card without having a credit score?

    the path i eventually chose was asking my father to open a credit card with me on it as an “authorized user.” it’s not an ideal situation, since he has to pay the bill and i send him a check every month, but eventually he’ll get off the account and i’ll be the only one on it.

    another thing you might consider is financing an electronics purchase. a friend of mine is paying for a TV in installments, and he plans to pay it off early. not sure how closely they look at credit scores over at best buy, but it may be an option.

    good luck – it’s pretty ridiculous that financially responsible people like us are looked on as toxic risks for credit card companies, but in the current economic state, i understand not wanting to “take a risk” on someone who doesn’t have an established history of responsible credit use.

  8. Try a small personal loan at your local bank. If you aren’t a member of a local bank or credit union, become a member and then get a small loan. They are usually easier to get at a small bank–only a few hundred dollars and pa it off in a couple months. That should get you started. And your bank might also offer a credit card you could get more easily. Good luck!

  9. There are several ways that your friend can get around the issues she is facing. For starters, you can get a prepaid credit card. You put $100, $500, or whatever you like on it, and then just put more on the card as you need it. This way you aren’t paying interest or risking going into debt, but you still have access to credit card requiring services.

    Also, she can get a debit card from her bank (if her bank won’t give her one she needs to find another bank- they will, I had this problem- switched banks and now I don’t). Rental Car companies will accept a debit card as a credit card. One caution: some companies post a specific amount to your account to make sure the funds are there, anywhere from $1 to $1000. Make sure you know this amount and have that much extra money in your account that you won’t need.

    For cell phones, pay in advance. You can get a pay as you go phone or just save the first two years worth. It’s kinda a bummer, but it will make her that much more financially sound. For a $30 per month plan that would be $720. Since you’re paying up front you might be able to get a better discount so try haggling!

    As for building your credit for a house, that is more tricky. I think the best plan would be to start building a relationship at the bank. Tell them you want to get a loan for a house. Show them your financial statements, explain whay you don’t have a credit score: you don’t like debt, don’t want credit cards, etc. Chances are they will realize you are a viable candidate. If they see that you know how to handle money they will work with you. They probably won’t be able to give you house loan right away, but they can help you get on the right track. Thirty years ago people didn’t take out credit cards as soon as they turned 18 to build credit. There are ways it just takes a little more work.

    With any of these problems, if you find that the company won’t work with you, move onto the next. With car companies, banks, and phone companies everywhere there is no reason that you can’t work out a deal with someone that will benifit both parties.

  10. It really is a stinky system.

    I, too, thought utilities showed up on credit reports, but I’ve never seen my utilities on those reports. Maybe they only show up if you don’t pay? Anyone know?

    It IS hard to get your first card. I was rejected for several at the beginning, too.

    I ended up going with a “student” card, and it had no fees thank goodness.

  11. Try Orchard Bank Mastercard. I’m considering getting this myself. From their site:
    The Orchard Bank Secured MasterCard is an excellent card for establishing or rebuilding credit in your name. It comes with a low 7.90% variable purchase APR, and the first year’s annual fee will be waived.

    * The ability to make online purchases or reservations, and access to manage your account 24/7.
    * Your choice of payment due dates to make paying your bill on time easier.
    * Email alerts to remind you of your upcoming payment due date when you enroll your account online.
    * Simply print and mail your application with your deposit (minimum $200) to start building credit right away!


  12. Hey Kacie. I just wanted to leave a post here letting you know I have been receiving and responding to your emails. I hope you get the most recent one I sent. =)

  13. Hey Crystal,

    I just e-mailed you back. I haven’t received any messages from you in the past day. I’m not sure what’s going on! Eep. If you have another e-mail address, maybe you could try to shoot me a message from that.

    I’ve checked my spam folder and your messages aren’t there, either.

  14. Everyone has given some great advice! But I want to send up a red flag about one thing. Paying off your credit card each month and never carrying a balance does not help your credit score very much at all! You have to actually carry a small balance over a few times for it to boost your score. Sound crazy?? Yep, that’s what I thought too!

    I was raised with a very financially smart example from my parents. I never had a credit card until I graduated from college and I got it to have credit and in case of emergency or something. I hardly ever used it and when I did I payed it off right away and never carried a balance. Then I got engaged and my hubby to be and I started looking at our credit scores in anticipation of buying a house. My score was good, but not near as high as I wanted. The only thing I had going against me is lack of credit history….. I had rented for a year, had a cell phone for a year, and that was about it. I was told that I needed to put a small amount on my credit card and take 3 months to fully pay it off. IT KILLED ME!!!! It went against everything I stood for to pay interest! But I was told I had to do it to help my credit, I did and it actually really did help! So those of you who are considering get a card to increase your score, no that paying it off every month doesn’t help your score. Put a very low balance on it ($100) and then pay it off over 3 months. It will help. Apparently when you pay it off every month, it doesn’t show you are using your card and hence doesn’t establish credit. Hope this helps!

    Liz’s last blog post..I’ve been tagged!!!!

  15. Before you get a mortgage, I think you need a credit score. Whether that’s from a secured card or being an authorized user on someone else’s card…it has to happen.

    Sure there are some kids who find Dave Ramsey when they are 20 and decide to buy a house with cash – I applaud that and if I had my crystal ball and 20 extra years of knowledge under my belt at the time, I would have :)

    We did not decide to go all crazy-debt-free until after we got our house and had our car…we figured we won’t really need credit for much else from here on out.

    jennydecki’s last blog post..Beyond Mom

  16. I think it’s stupid too. I also think banks should be more willing to give out credit cards with a very small limit to get people started on the right foot. When I got my first card, it was from Capital One and it had a $300 limit. I paid it off each month and was so proud of myself. There are secured visa cards out there (National City offers one) that she could 100% get approved for. You have to put up a security deposit though. Let me know if you have more questions; I don’t want to write a book here. :)

    Mrs. Money’s last blog post..Tax Time!

  17. About what Liz said…

    That explains a lot. My husband and I were charging things and paying them off before the month was up and were wondering why our credit score barely budged. I STILL don’t think it’s gotten much better and we’ve been paying on this house we’re sitting in for almost two years! We’ve never paid late on the house or the car.

    It seems to me that if you want a good credit score, you must purchase one. It’s a conspiracy!

  18. I obtained my first credit card at 17, and paid off any balance in full every month. I obtained two cards within the next couple of years, and always paid the balances on those as well. My credit scores were just under 700 (in the “good” category, but not great) the first time I ran my credit when I was 20 and thereafter. After I had a short-term loan on my credit (a secured loan just to boost my history), they were in the 720 range. I have NEVER carried a balance on a credit card (but use them constantly as I gain the “rewards” from them) and my scores were in the 720-740 range before obtaining my mortgage. Now I’m in the 730-750 range and have no debt other than the house (actually, I initially took a 20 point HIT from the mortgage).

    You don’t need to carry a balance in order to show “activity” on your credit cards. If you look at your credit reports, it will show the “balance” in the snapshot for each account. Most cards use the balance as of your statement date – which means whatever you owe on that closing date is what shows up on your credit report (some banks do take their “snapshot” at other times, but they are few and far between). So you can pay off the balance and still show activity.

    Your friend should start a relationship with a local credit union. Ask them about secured loans (not credit cards). Pretty much you utilize cash you already have to secure the “loan.” The whole point is pretty much to build your credit. I did that to help my husband rebuild his credit and it worked like a charm. They also are more likely to have secured credit cards (secured by savings account balances). Either would help her build her credit.

  19. I’m Kacie’s friend B.
    All of these responses are awesome! I’m blown away by how many people have been in the same situation and have such great advice. This might get lengthy — I want to respond to it all. :-)
    I’ve been turned down for every credit card I’ve applied for, but I haven’t tried a Capital One card yet — I’ve heard those are quite easy to get. Granted, I haven’t been at it for that long (just 6 months or so), but I think it’s 5 months too long, you know? Most recently, I was turned down by Target, which I was certain (for whatever reason) I’d be a shoo-in for, as it was a store-only card for a discount chain. I’m pretty sure now that a credit card isn’t the way into the credit game for me, especially with the economy as it is. Family members keep reminding me that companies are getting tight with their credit and it’s a bad time to be getting into the credit game — but what else can I do?
    I doubt I’ll be in the market for a mortgage anytime soon, but there’s no good reason to wait for a big purchase to deal with the you-need-credit issue, because I’m sure buying a home is stressful enough.
    Sidd Finch — it sounds like you were in the exact same boat as I am! Although it’s nice to know I’m not alone, it isn’t fun at all and I’m sorry it happened to you and the other commenters, too!
    Rachel, Kasey, and AnnMarie — someone else recently brought secured loans from a credit union to my attention and my mom keeps mentioning the possibility of small loans as a good choice. I belong to a credit union back home (Indiana) and have been considering moving my money to one where I live now (Hawaii), because I don’t like my bank (I was raised with a local credit union and love them). This may be the next thing I try.
    Megan — I do have a debit card (I’ve had one since I was 16) and have always used them responsibly. But they don’t show up on your credit report (unless you overdraw, probably — how fair is that?). I use my debit card easily with Enterprise Rent-a-Car (they’re the only agency I’ve found that doesn’t run a credit check when they run your debit card), and the amount they hold isn’t very much. I think it might be $300 or $350, depending on the branch location, and they credit the balance once you return the rental. I rent exclusively from them now, just for that reason.
    Jenny — I totally agree! I’ve said almost the exact same thing lately, that I need to waste my money (on interest, fees, unnecessary large purchases, etc) just to prove my responsibility with it. That’s not fair.

    I’m sure I could respond to all of the comments and suggestions, but I don’t want to write a novel on here. :-) Thanks for all the suggestions and encouragement! I’ll check back later and see if anyone else has more advice. It’s sad that parents can do too good of a job teaching their kids about credit. Mine were in a lot of debt for most of my growing-up years and didn’t want my brother or me to end up in their situation. I’m so thankful for their advice and warnings, but the way the credit industry is set up, they just don’t reward people for being responsible like that. My mom and I have laughed about it a lot lately. But I’m still glad I followed her warnings and didn’t get a card in college and use it unwisely.

    Also, a big thank you to Kacie for highlighting my situation! You’re the best!

  20. Re: Liz and Jenny, and carrying a balance.

    I’m in agreement with Rachel.

    What is important is not carrying a balance but what your credit card company is reporting as the highest usage.

    I check my credit score and report every couple of years to make sure there aren’t any discrepancies because there was a card opened in my name w/o my knowledge 7-10 years ago. On it, the length of history and “paid on time” is marked for each month that is applicable. There’s nothing on there about whether or not I carry a balance.

    The common variable appears to be whether or not your CC company reports your highest balance when the statement closes. Some companies don’t report your highest usage when you don’t carry a balance, but that’s not to say you must carry a balance in order for any of them to report your actual history. If they’re not reporting the highest balance ever reached, I would suggest calling them to request that they do. They might, they might not. But don’t feel pressured to pay them interest just so that they’ll report a good history for you!

    Bethany — depending on your bank, you might be able to convert your debit card into a debit/credit card. Of course, use it the same responsible way, but this card should create a history. And that dodges the application bullet, usually. My banks used to convert my cards to rewards cards at the drop of a hat, but you probably have to ask now.

    It might be worth opening a free checking acct and getting the associated card if your bank doesn’t offer this alternative. ING Electric Orange, perhaps? I know they just rolled out a promotion where you can get a free $25 for using their card 3x within 45 days, too. I haven’t looked into that too deeply but I’m pretty sure their card is a rewards Mastercard card.

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Hey! I'm Kacie, wife and mother of 3. I write about my family's finance: how we save money, improve our spending, and plan for the future.

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