Most people celebrate when they have a high credit score. There are countless financial gurus who swear by certain techniques to get the number up to the coveted 850. But that’s not Erin Flaherty’s approach.
Flaherty and her husband have spent the last year working in the complete opposite direction. She watched with glee as her credit score went from 810 to 780 to 640 to 310 to zero. That’s right — zero.
Flaherty is part of a small but vocal group of people who believe that the only credit score worth having is a zero credit score. She swears that the big zero is doing wonders for her financial life.
It all started 10 years ago when Flaherty’s husband received a gift: a free session of the wildly popular Total Money Makeover course by the controversial personal finance legend Dave Ramsey. His approach to credit scores? They don’t matter. Ramsey’s beliefs center around the idea that “debt is dumb and cash is king.”
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How to Get a Zero Credit Score: Flaherty’s Journey
For Flaherty, getting out of debt wasn’t easy. It took more than two years to pay off roughly $30,000 of student loans and consumer debt.
Each time she paid off an amount that she owed, she closed the account to avoid further temptation. Because credit bureaus punish you (at least temporarily) for reducing your available balance and diminishing your credit history, Flaherty’s score dropped with each passing month.
And just like that, when she owed nothing more, Flaherty had a zero credit score and tons of bragging rights — within a certain circle.
“I didn’t think it would get that low and stay that way, but it’s been two years now, and it’s still zero,” Flaherty says. “I still check in on it every month to make sure nothing is going on. Each time, I breathe a sigh of relief when I see it there and am reminded that I’m 100 percent debt-free.”
Flaherty’s excitement over a zero credit score spread to her friends and family. “I couldn’t believe how many people were interested in getting rid of the stress of having a high score. I thought that they would judge us or think we were crazy.”
Two of those friends were newlyweds Anna and Eric Cole, Flaherty’s neighbors. They also have a zero credit score now, but getting there wasn’t exactly smooth sailing.
Challenges of Having a Zero Credit Score
For the Coles, having a zero credit score put a significant roadblock in their way when they needed money most.
“We didn’t plan on borrowing any money,” Anna says. “We were going to be debt-free, but then Eric got injured, and we didn’t have an income for a few months. We went through our emergency fund, but we ended up having to borrow money for a roof repair. The zero credit score made it very hard to find a lender.”
The Coles’ story illustrates the biggest challenge of having a zero credit score: It becomes extremely difficult to borrow any money.
Even for those who are well prepared for financial hardship, the need to borrow cash may always be there. An inability to prove to lenders that you're reliable with money can be a major hurdle.
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Plus, if you’re interested in buying a home or an investment property, doing so is nearly impossible without a cosigner. Smaller lenders, such as local credit unions, may be more willing to make such a sizable loan to zero-score borrowers using a manual underwriting process, but this will require extra legwork on your part.
You will need to show paid bills (such as rent or utilities), at least 18 to 24 months’ worth of income, and maybe even personal references. You can also be denied if you can’t put down more than 20 percent.
Dealing With Credit Bureaus
Keep in mind that having a zero credit score doesn’t mean you’re exempt from credit bureaus having or sharing your data. The large Equifax data breach made it apparent that this, too, comes with risk.
“You will still need to be diligent about tracking your credit score and history to be sure no one has taken your information and built your score back up for you,” Flaherty says.
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Is a Zero Credit Score Right for You?
There are currently 19 million Americans with a credit score that’s zero or incredibly close to zero, according to research by the Consumer Financial Protection Bureau. That doesn’t account for the additional 26 million Americans who have no credit history whatsoever.
For some, the zero credit score is an ideal to strive for, provided it aligns with their lifestyle and earning potential.
We turned to credit industry analyst Nathan Grant of Credit Card Insider to determine who can benefit from a score, and who should stay high and dry.
1. A Deterrent From Rampant Spending
“You don’t have the temptation of recklessly spending money on things you don’t actually have the money for, which so often accompanies having a credit card,” Grant says. As such, habitual credit users who are non-habitual at paying off debt can check their bad impulses with a zero score.
2. No Interest, No Problem
“You won’t be accruing interest on things you purchase, and will likely spend less overall, which in turn could lead to less financial stress,” Grant notes.
1. The House Always Wins
“Without a credit history and credit scores, it will be much more difficult to buy a house, vehicle, or anything else that costs a large sum of money unless you can pay in cash,” Grant says. “Essentially, you either need a huge income or exceptional money management capabilities in order to succeed without credit scores.”
Unless you already have a house and car (and the necessary income to purchase another directly), you may want to avoid a zero credit score for the time being.
2. Get Ready for High Premium Insurance
“You will likely have higher insurance costs, as good credit scores help secure lower rates.”
3. Finally, Anticipate Added Costs
“Without credit scores, you may also have to pay larger deposits up-front for things like cell phone plans, utilities, rental cars, and apartments,” Grant says.
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The Bottom Line on a Zero Credit Score
Having that zero credit score provided the Coles and the Flahertys with the financial freedom they craved. Not having the typical pressure of trying to reach perfection to please future borrowers is a huge relief.
But as Anna says, “The key is to know what a zero score can and cannot do for your financial goals.”
Additional reporting by Connor Beckett McInerney.