In the words of Sir Thomas More: “Credit’s a bitch.”
OK – that might have been my brother last Christmas, but the point sticks. Getting a credit card, mortgage or loan when you have no credit is frustrating… and depending on what you want, costly or impossible. You need to have credit to get credit. Wallet Engineer #2 uses his good credit responsibly and reaps the benefits for it. He receives credit card rewards and the lowest possible mortgage rates. I, on the other hand, cannot get a rewards card. My mortgage applications go into the “Burn after Reading” pile. I am a credit ghost.
What is a credit ghost?
A credit ghost is someone who has no credit. It should not be confused with a low credit score or “bad” credit. A credit ghost like myself, has no credit. If you look at my credit score it is “–” as in ‘not a number’.
Technically, this indicates neither good nor bad credit, just a lack of data. In real life, though, a blank credit score is akin to the scuzz pulled off a swimming pool by one of those big fish netty… things.
The value of a “ghost credit” situation is exemplified in my first cell contract – back as a young financial naif I signed up for a 2 year contract. For this, my provider ran a credit check, and upon finding the state (or lack thereof) of my credit, I was informed by the Call Center Queen that I would need to pony up a deposit. In this case $400. I agreed, eager to “plug in” to the “new age” and get a pocket internet. I opened my wallet and peeled out hard-earned greenbacks. (That is, those earned through actual physical exertion). At the end of it all, they paid that deposit back, and even tacked on some interest. After one year, I made $11. Possibly my first, taxable capital gain. (i.e., possibly not hard earned). God that was an exciting time for me.
My brother, on the other hand, paid no deposit recently when switching cell providers. While he’s a bit of a boob (paying exorbitant sums through Sprint), he was free to spend his $400 however he saw fit. I’m not sure that he got any further than Scots whiskey, but it’s not hard to draw an overall theme from this anecdote. Good credit trumps no credit. It saves you money, and allows you to invest your $400 as you see fit. If you’re a savvy investor, you can make a hell of a lot more than $11.
OK, so, we’re all agreed – it’s time to enter the world of the “credit vivant.” (That is, living credit. I just made that up – but ghosts aren’t technically alive, so that’s where the joke comes from. You probably understood that already. I’ll end this parenthetical notation now.)
Oddly, entering the world of the credit vivant is (on some levels) somewhat counter-intuitive. You can be a credit ghost by being a completely responsible member of society, namely, by:
- Having no loans of any kind
- Having no credit cards of any kind
- Having no reported rent history
- Having no student loans or reported debt.
You save money, you spend less than what you earn. Right? Responsible.
Without credit you could be a homeowner (if you inherited, maybe), and purchase all your vehicles in cash. It’s possible. It’s possible that you’re completely responsible – but to the lenders, you’re an unknown. A risk. The lenders don’t know this. You could also be a crack-addled Oscar the Grouch character living out of a garbage can.
The former scenario was true in my case. (I was responsible) I had worked – and had even avoided student loans due to scholarships and savings. But, I wasn’t really one of the credit living.
So, if you’re like me, or… for whatever the reason, if you’re a credit ghost, there are small things you can do to grow your credit presence.
Want good credit? Do these things!
- Get a credit card – do your research get something inexpensive (free) with a low line of credit. Then, charge one small purchase each month (such as fuel) and repay it every month in full. (1)
- 1(a). When you’ve been with your card provider for a while, ask to upgrade – get a better card, a better rate, or a credit line increase. The amount of credit you have with one lender will impact other potential lenders in a positive way!
- Pay to have your rent history reported on a one time retroactive basis or on a per-month future basis. This general reports the previous 2 years of history.(2)
- Get signed up as an authorized user for a separate responsible credit card user.
- Pay your mortgage(3)
Alright – the long and the short of it. If you’re ghosting your way through your credit life, the single best, cheapest, real-worldiest thing you can do is find the best deal available on a credit card, use it (responsibly!) and pay it off every month. Lenders look not only at your credit score, but at how long and how consistently you’ve paid your debts.
(1) Wallet Engineer #1 recently was accepted for a student credit card with a $300 limit. Astounding. My first payment will be submitted around the 9th of November. Additionally, remember to SPEND RESPONSIBLY. This isn’t one of those cheesy, beer commercial closing lines. (i.e., drink responsibly) that people just choose not to follow. This is FOR REAL. RESPONSIBILITY MATTERS.
(2) I will try this once I have close to 2 years of rental history.
(3) I only advocate debt for a mortgage or if your college degree is a good investment for your future. I am looking at you unemployed English-degree holding Private-college goers with 100k of debt. Buy your car with cash. http://www.mrmoneymustache.com/2011/11/28/new-cars-and-auto-financing-stupid-or-sensible/