Dave Ramsey doesn’t have one. I didn’t have one when I first graduated from college.
What am I talking about? A credit score.
Our reasons are different–Dave Ramsey shuns credit, and as a recent college graduate, I hadn’t yet opened a credit card account nor bought a car with a car loan–but we were still in the same situation. So, how did a recent college graduate making less than $35,000 a year get lumped in the same high risk category with Dave Ramsey? Simple. FICO didn’t have a score for either one of us because we hadn’t used credit in the last 6 months.
Life Without a FICO Score
Of course, if you’re Dave Ramsey earning a gazillion dollars a year (just joking, sort of), you don’t really need a credit score. You can pretty much buy what you need with cash.
However, if you’re like the majority of Americans, you need a credit score to do the most basic of things like rent an apartment or qualify for a car or home loan. (Okay, if you follow Ramsey’s advice to stay out of debt, you don’t need to qualify for a car loan, but you still likely need a home loan. Besides, many landlords routinely ask to check your credit before agreeing to allow you to rent their apartments.)
For many, then, there is a problem. How can you shun credit cards as Ramsey advocates and yet still have a credit score? For years, the answer used to be–you can’t.
However, CNN Money reports that hope might be on the way in the form of a VantageScore.
What Is a VantageScore?
A typical FICO credit score simply looks at the last 6 months of your credit history.
VantageScore, which was created by the three credit bureaus (Experian, Equifax and TransUnion) and unveiled in 2006, instead looks at 24 months of payment activity including payments that don’t require credit cards such as rent or house payments and utility payments.
How Many People Could Benefit from VantageScore
According to CNN Money, nearly 64 million Americans don’t have enough credit history or activity to generate a FICO score. Of that group, 10 million have excellent credit, and another 20 million have good credit.
Currently, many banks and other lending institutions are missing out on those consumers because they essentially have no FICO score. The VantageScore would show that these consumers are attractive to lenders because they are responsible with their money.
When Will VantageScore Become Mainstream?
For people without credit to benefit, VantageScore must become more mainstream. Currently, almost all lending institutions rely on the industry standard, the FICO score.
Until VantageScore becomes mainstream, if you are one who shuns credit, you may be faced with a difficult decision–either use credit sparingly every month and pay it off immediately, or save enough money to pay for everything you need in cash. (This, of course, is Dave Ramsey’s preferred method.)
Do you use credit just to keep a high credit score, or, like Dave Ramsey, do you shun credit? If you shun credit, have you had problems with not having a FICO score?