Can You Survive Without a Credit Score?

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You may think there is no way to get by without a credit score in today's society. But did you know that roughly 45 million American consumers are doing just that?

According to the Consumer Financial Protection Bureau, the consumers in this group are considered either “credit invisible,” meaning they have no credit history with any of the three nationwide credit reporting agencies, or “unscorable,” meaning their credit history has little or no recent activity.

It's a challenging road to walk in a credit-driven culture. But it's not impossible to get by without a credit score. Here's what you may have to deal with to go credit-free.

What It Means to Have No Credit

Having no credit score is not to be confused with having a low credit score or bad credit. And it doesn't always mean a consumer has no credit history.

The Fair Isaac Corporation, which produces the FICO Score, states that for a score to be generated, your credit report must have

  • At a minimum, one account that has been opened for at least six months
  • One account — at least — that has been reported to the credit bureau within the past six months.

So it is possible for a consumer to have a credit history but no credit score, as would be the case for consumers who pay off their debt and close their accounts.

Let's consider a few instances in which not having a credit score may pose a challenge.

Renting an Apartment

Leasing an apartment with no credit score may require a little legwork on your part to find a landlord that will work with you. Large management companies typically process a significant number of applications across multiple properties, and many of them tend to rely heavily on FICO Scores.

On the other hand, if you are renting from a smaller company or an individual, they may be more flexible in their requirement of a credit score. Preemptively telling a potential landlord you do not have a credit score before they check should increase your chances of their leniency.

Looking for Employment

You may have heard that prospective employers can check your credit. Unless you work in one of the approximately 15 states or major cities that ban or restrict pre-employment credit checks, that is true—with your authorization, a potential employer may check your credit during the job application process.

But it is the information in your credit report that you are granting them access to, not your credit scores. The absence of a credit score should not affect hiring decisions.

Many other states are considering adding restrictions on employers' rights to check your credit as part of the applicant screening process.

Securing Car Insurance

Car insurance companies do consider credit history during the underwriting process. However, they use a specific credit-based insurance score that is derived from the information in your credit report, not your actual credit score.

Exact methods for generating your insurance score vary among different insurance providers, but many of them are fairly similar to Progressive's model, which looks at accident claim history combined with credit report information to arrive at a score. This means that, although your credit score is usually not a factor in securing car insurance, your credit history likely is.

Getting a Cellphone and Establishing Utility Accounts

Some cell phone and utility providers check your credit when extending service to you. But they differ in how they evaluate the absence of a score.

Some service providers simply omit that factor from their decisions, while others may not extend their best rates or service plans to you—or they will require a deposit.

Applying for a Mortgage

The mortgage underwriting process is detailed and rigorous, and as a result, most lenders put a lot of weight on credit scores to evaluate your creditworthiness.

However, some mortgage issuers will do manual underwriting where they evaluate your file without a credit score. Typically, you will need to provide proof of extended on-time payment history for your non-credit accounts such as rent, phone, utilities, and other monthly bills.

Financing a home purchase without a credit score will require some effort but is doable. You are less likely to find a big bank willing to underwrite a mortgage without a credit score, but you do have options among smaller lenders, online lenders, local banks, and credit unions.

Life Without a Credit Score

It is possible to survive without a credit score. However, we do live in a credit-dependent world, which will make getting on without a score difficult at times. Impossible? No. Challenging? Yes.

It’s important to know what lies ahead of you should you choose not to have a credit score. Only then you can decide if that is the right path for you.