You Can Avoid Credit. But Here’s What Happens When You Try to Buy a Home

avoiding credit

Have you ever gotten into credit or debt trouble in the past? Perhaps your first experience with credit lead to you overextending yourself by racking up too much credit card debt. Maybe you developed the bad habit of charging more on your credit card accounts than you could afford to pay off each month.

Regardless of the initial cause of your credit or debt troubles, it probably left a bad taste in your mouth and a damaged credit report. Rebuilding damaged credit isn’t fun. It's understandable that you might be tempted to simply avoid credit altogether after all that drama. The problem with going off the grid: It can often backfire.

Why Credit Avoidance Can Hurt You

Although you may be able to avoid the use of credit in many instances, you cannot avoid the fact that your credit, or the lack thereof, will likely be used to evaluate you almost constantly. There are obvious times when your credit will matter, such as when you apply for a credit card, auto loan or personal loan. You could argue that such instances will be few and far between as you've decided to stop applying for financing altogether and don't see yourself buying a home.

If your attitude toward credit has been one of avoidance, you may find it extremely challenging or perhaps even impossible to qualify for the financing, and what's the likelihood that you'll be able to write a check for a house?

Even if you choose to rent instead of purchase, your credit will likely be used to evaluate you. A lack of credit might not exclude you from renting, but it could certainly make the process more difficult and expensive. If you wish to purchase a home, the status of your credit will matter a great deal. If your attitude toward credit has been one of avoidance, you may find it extremely challenging or perhaps even impossible to qualify for the financing, and what's the likelihood that you'll be able to write a check for a house?

There are other times when the condition of your credit will impact you more so than you have ever considered. Do you want a new mobile phone plan? Your credit will likely be evaluated. Are you applying for new auto or homeowners insurance coverage? Your credit may play a role in your approval and your premium. Are you opening a new utility account? Your credit will be used to determine deposit requirements.

Debt Avoidance Is Still Wise

Having credit does not mean having debt. It is, and always has been, extremely wise to avoid debt whenever possible, especially unsecured credit card debt. All debt is not created equal, of course, and most experts will agree that borrowing funds to purchase the right home is “good” debt because of the wealth-building qualities of real estate. However, you probably will not find any reputable credit or financial expert who believes taking on excessive amounts of credit card debt is ever beneficial.

In fact, when you charge more on your credit card accounts than you can afford to pay off in a given month, your credit scores generally suffer. Even if you make your monthly credit card payments on time, your credit scores are likely to be impacted negatively when you revolve an outstanding balance, especially a high balance, from one month to the next. Credit avoidance is probably not in your best interest, but credit card debt avoidance is a no-brainer.

Am I Better Off Without a Credit Report and Score?

To have either a FICO or VantageScore, you have to have a credit report. That’s a systemic reality. The benefit of having both a credit report and a credit score is that most lenders use an automated application processing and underwriting system that is built to consider credit report data and credit scores. If you don’t have one or the other, or both, then you fall outside the norm, which can mean denials or credit delays.