How To Live Debt Free With No Credit

debt free, no credit
Image from TangoPango

The classic Saturday morning cartoon “Garfield and Friends” came around 16 years too early. I remember distinctly as an 11-year-old watching my favorite cartoon on the couch early Saturday mornings, gaining wisdom in 6-minute vignettes that I still use today.

In an episode called “Cash and Carry”, Garfield’s owner, Jon, became fed up with his high credit card payments. He paid everything off, cut up the cards in true cartoon frustration, and declared triumphantly that he would only use cash from then on. It was going well for him until he went to the mall to purchase a wastebasket.

Going up to the counter with his basket, Jon hands the clerk a rectangular piece of green paper. The store clerk looks at him and asks, “What’s this?”

“It’s cash,” Jon said.
“To pay for the wastebasket.”
“Um, I have to get my manager. I don’t know if we take ‘cash’.”

After encountering the same frustrating scenario in every store he visited, the 6-minute prophetic cartoon ends with Jon frantically signing up for every credit card for which he could find an application just so he could buy the stuff he needed.

Is our instant-gratification, consumer-driven society leading us to this end?

How We Live Debt Free With No Credit

My husband and I have been living credit-free for three years, opting for a cash-based budget. We have not accrued new debt since maxing out our six credit lines: we have not opened new credit cards, a department store card, not even a car loan. We budget our money and save up for larger purchases (or we at least time large purchases around bonuses and checks from the IRS). Instead of relying on a piece of plastic “for emergencies only”, we have some cash stashed away in high yield savings accounts for the unexpected events that we do expect will come up, especially with a two-year-old in the house.

When the “people in the know” (government and non-governmental economists, specifically) begin talking about “getting credit flowing again” so people can begin purchasing “things they need” to “get the economy going again”… indignation does not begin to describe our reaction. We do not use credit, but that doesn’t mean we have stopped purchasing altogether. Each month, we are able to purchase what we need, and even a few things that we want, thereby stimulating the local economy and providing local jobs without flirting with the risk of paying interest that putting a purchase on credit would bring.

Can We Live With A FICO Credit Score of Zero?

In approximately five years, my FICO score, as well as my husband’s, will be 0. According to the current laws of economics, we will become second-class citizens at best and completely cease to exist at worst. We will be asked to pay a fee to sign up for city utilities should we move. Should we change wireless providers or sign up for cable or satellite services, we will be asked to put down money upfront as a deposit — despite the fact that we would be able to pay for a year’s services in advance. We may not be able to rent certain apartments. A score of 0 may change my husband’s military security clearance.

We may be denied some things, but we will have our entire paycheck to play with. After the household expenses are paid, the money is ours to do with as we please. We won’t have to worry about fees or interest or missed payments or wondering where the money will come from if we lose a job.

So what has readily-available credit gotten us? A housing crisis. A very nice flat-screen TV purchased on impulse. Fear and hopelessness. The latest model hybrid. “Government Motors”. Wondering if the payment arrived on time in order to avoid a late fee. Less “play money” at the end of the month. Consumer credit counseling. More governmental regulation (not to mention guns in national parks). More bankruptcies than ever before in history. Taking four years to pay off a cheeseburger. Being known only as a three-digit number. Risking the possibility of an interest payment this month. The “Free Credit Report Dot Com” guy and other myriad credit monitoring services.

Are these good, or at least acceptable, things? Maybe to some people. Are they bad things? Ditto.

For us, “living within our means” means “if we have to make payments, we can’t afford it”. If everyone in the country was able to live within their means, would we have as many foreclosures, or repossessions, or harassing collection calls, bankruptcies, divorces, or other plagues on society?

When 75% of the Fortune 400 say that the key to wealth-building is getting and staying out of debt, do you wonder how it could be like to live without credit?

Contributing Writer: Rachel Strong

17 thoughts on “How To Live Debt Free With No Credit”

  1. It may be possible to live a life that is free from any debt without any credit, but, the financial situation of each person differs and not everyone may be able to lead debt free lives

  2. Saving money is a very important matter, so we have to see all small things from which we can save single penny. Check out some ways for saving like always look for sale, don’t use bottled water, always buy from same shop. Evey person should inculcate the habit of savings for a brighter and secure future. For more details on saving money refer to this article.

  3. You’re wrong… your credit score can never be zero. The range for FICO scoring is between 300 and 850. Not using credit generally will not ruin your credit. If you had a good FICO score before you decided to stop paying using credit cards, your credit score will not be lowered significantly. It should not be lowered to the point where you have to give deposits for utilities.

  4. The peace of mind that comes with paying as you go and living within your means is priceless. Bravo to you and your husband for getting off the hamster wheel of debt.

  5. I really think this article is somewhat silly. You can live 100% debt free and still maintain a very strong credit score. Simply maintain a few credit card accounts and just commit to not using them. (Heck you can actually cut up the cards if that helps). Just maintaining the open accounts will give you a solid credit history. I’ve had cards for 10 years that I haven’t used once, but the credit card company leaves them open.

    Some people will say that eventually the Company’s will close the accounts if you don’t use them. I don’t really think that is true, but if you are that concerned maybe you could use the account once a month to buy a pack of gum and then immediately send in a payment. (You will now have a long history of on time monthly payments). Have no debt is brilliant. Having no credit history at all doesn’t seem necessary or particularly wise.

  6. Babbit is right, this is silly. I keep one credit card open. I use it a few times a month, then immediately pay it off online. No hassle at all. If I need to rent a car in an emergency or open a wireless account, I have great credit. Living debt free should not mean having no credit score.

  7. I think it’s a great idea. This is one big tool sleazy lawyers and stalkers use to find you, through your credit file. Once you stop using credit there will be no record of any changes of address and phone number you may have. All that stuff is public domain and is sold and re-sold, regardless of what “privacy” you may think you have with the credit reporting agencies. It’s how they make money all day every day. Don’t believe it? I know people who like to maintain their privacy are seen as kooks in the newspeak world, but c’est la vie. Just putting in my bit of knowledge.

  8. I really wasn’t going to comment here because I’ve known a lot of articles on the internet to be nothing but fluff. But nice job. You really have common sense. That’s what seems to be lacking in our hi-tech world.

  9. I can’t believe how uniformed most of the world is. Of course your score will drop to zero after seven years of not using any credit — there is nothing to report! I am 20 years old and debt free- the only money I ever plan to borrow is for a mortgage. I know some landlords check credit, but I believe this won’t be an issue for me while I am renting before I purchase my home. It’s simple — I pay for a full year’s rent up front, and then 1 month before the year lease is up I can pay upfront for another year’s rent! It only makes sense to me that I should also be able to get a discount doing this! Keep spreading the word, maybe a few more people will catch on!

  10. We have lived debt free for 5 years. No car payments. No credit cards. Freedom. Eye-opening. Feels like we’ve crossed over to the dark-side so to speak… people make fun of us, say that we’re not realistic, but then later ask us for advice.

  11. I’m planning to live with less dependence on credit cards. This helps a lot, at least to inspire me to get started. Thanks for the great post!

  12. I think this should be cleared up. A FICO can never go below 300 or above 850.

    My grandfather has never borrowed money in his life and is 89 years old. When we did his estate plan the bank pulled his credit score and it was 775. The banker told me that FICOs tend toward the upper 700s for people that never use debt.

    The reason this may be true is that banks pull your credit score when you open deposit accounts. I found this out when I open my health savings account. As I signed the paperwork the banker informed my my FICO was just over 800 and I use no credit either. I was a little irritated because they pulled the report and never told me until after they did it.

    Therefore, this unfounded fear that living debt-free will hurt you worse than bad credit habits is an urban legend. You can still buy a house, rent an appartment, etc. Now, young people with no credit history will have a difficult time getting a mortgage. But then again, I paid cash for my first home. It was small, but I made payments to me instead of the bank.

    Living debt-free is great. The economy suffers, yet my lifestyle has not changed. Find an old person that lived through the Great Depression and learn their savings habits and you will do okay.

  13. Robert Baylosis

    It’s nice to know that there are folks like you who live debt free. That is our goal too, to be debt free. After buying a house and have it
    foreclosed after more than a year paying for it, we are in a hole. Your article just gave us an inspiration to move on an pay for all our
    debt and start living a debt free life.

  14. What-ever: Fico goes to zero OR can’t go to zero. My wife and I live debt free. This after, borrowing up to my yearly salary (Ok more than my yearly salary) in credit card loans, auto loans. We finally had enough. I use to worry about meeting our payments each month. Around the 15th of each month, I would start figuring how we were going to pay the cards. No more. We finally forgot about worrying about our FICO. We closed all are credit card accounts, except one that had a $1,000 limit and a low interest rate. We paid off all the accounts and now each month we sock a away more funds.

  15. Michael the Banker

    Yes, you can have a zero score. I work at a bank and run people’s credit every day. If there is no activity (credit card usage, car loans, mortgages, etc) then there is no information for your creditors to report to the Experian, Equifax or Trans Union.

    I commend the spirit under which the author has written this article. Yes, debt can be a bad thing. However, the peril of not having a credit score is that if and when you do need to borrow money, don’t be surprised if you get turned down. Unfortunately, we are all numbers when it comes to borrowing money. Banks and other institutions scrutinize borrowers more now than ever. Your credit score also places you into a “credit tier” which will determine the interest rate on your loan.

    Currently, I am debt free and continually saving money. However, I do use credit cards and don’t carry a balance. The benefits?

    Rewards…Over the years, I’ve earned cash back, hotel points and airline miles. These rewards have subsidized a lot of my vacations so that’s why I use them.

    Convenience…It’s easy to have your cell phone bill, car insurance, etc all directly billed to your credit card and at the end of the month, just pay it off.

  16. @Michael the Banker,
    Thanks, that’s some awesome advice you gave. I’m actually all for being debt free but at the same time, being smart about using credit. I think that knowing how to manage your credit and debt this way is smarter than maintaining an only cash existence, because you keep your options open.

  17. My wife and I live debt free and both have high credit scores from past credit. Last I checked, mine was 810, hers in the high 700’s. We use credit cards periodically when traveling, but pay them off immediately. I do all my bills on-line, so it is an easy click to pay off anything every month.

    She is retired; I am still working for awhile longer. Living debt free is hassle free, worry free, painless, drama free. I recommend it highly. Lots of good stuff on here, by the way if anyone else is considering what is to me a life style. We just threw our annual Christmas party for 50 of our friends with 2 bartenders and all the goodies, because we can.

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