Me either.
My bank lender even seemed confused by this.
NerdWallet tells us:
Normally, credit scores run from 300 to 850, but there is an exception to the rule: a score of zero. It’s not as frightening as it sounds. A zero doesn’t mean you’re a reckless spender—a score of 350 probably would. It simply means that creditors don’t know what to do with you.
I'm glad we took the route of getting pre-approved for a house loan before we found a house that we liked, because it turns out that my husband has a credit score of ZERO. He can't get a loan until he builds up credit.
It seems ironic. We can't get a loan because we carry no debt. I didn't even realize this was possible.
After researching this, I found out that it takes six months after discharged debts for your credit score to drop to zero. Essentially, if you have no open lines of credit you have no score. Because we paid off our house 8 months ago, the credit score dropped to 0 around the first of the year. My credit score is 810 because I have a couple credit cards open (which we don't use) but I can't get the loan myself because I have no income.
The only thing we can do is open some credit lines for hubby (which we did and he was immediately approved for) and wait three to six months for that open credit to show on his credit score. It seems so counterproductive to have to be in debt to show our ability to pay on a loan, especially since these lenders have at hand the proof that we own our cars outright, have total equity of our house, and have not been late on past payments. As this blogger points out, you can actually be punished for your financial stewardship.
I'm sharing this because I had no idea that paying off all debts could be bad for your credit! If you have no debt, apparently it is still a good idea to keep several credit lines open, whether you like it or not.
The financial guru Dave Ramsey claims that having a Zero credit score means that you're doing something right in not having credit. He said you should pay cash for everything including buying your home. Not everyone can purchase a home with cash or a vehicle for that matter either.
ReplyDeleteAtleast we are doing something right in life! Lol
ReplyDeleteWe just bought a new, huge passenger van. With a recent inheritance we were going to pay it off but were discouraged from doing so. Instead it was suggested to pay of 3/4 of the loan and refi the last portion to a tiny payment that will keep our credit scores up. This makes sense to me, yet is crazy all at the same time.
ReplyDeleteIt seems so crazy, doesn't it? You'd think paying off balances would look better than keeping them but I guess not in the financial world. :/
DeleteWe just bought a new, huge passenger van. With a recent inheritance we were going to pay it off but were discouraged from doing so. Instead it was suggested to pay of 3/4 of the loan and refi the last portion to a tiny payment that will keep our credit scores up. This makes sense to me, yet is crazy all at the same time.
ReplyDeleteWe have the same problem, well... I do. I have no debt in my name, no credit cards, loans, etc. So I have no credit. But I also have no income as a SAHM. It's scary to me because what if my husband dies or we divorce?
ReplyDeleteYou should be able to open some credit cards in your name still. At least that will up your credit score!
DeleteGod only asks for 10% of our income and to stay out of debt. Our government asks for at least 33% of our income and rewards us for being in debt with tax breaks and good credit scores. Does it make any sense?
ReplyDelete