As I’ve stated before in Zero Debt I think that zero debt is a wonderful thing. Most people that achieve this do so in midlife after working very hard to pay off loans they took out when they were younger. If you’ve managed to make it to 30 without taking out any loans you deserve a big gold star! Unfortunately you may find that what you have is a big zero. A zero credit score that is.
What’s the big deal? Your credit score is used to decide your car and house insurance rates. You will probably need a credit score to get a home mortgage. In the past a record of timely payment of your rent and utilites showed enough of a credit history for a bank to loan you money. Nowadays I don’t think that’s an option. Because of the recent home mortagage fiasco in the US the banks have tightened their lending guidelines.
The average thirty something American with an income of less than 50,000 dollars a year has debt of $41,000 according to the Wall Street Journal’s Smart Money site.
If you’re average you’ll need to pay down your debt to be able to afford the house loan your credit score will get you, and still be able to buy groceries.
If your unusual and have zero debt the banks might not want to risk lending you money. You’ll need to grit your teeth and take out a loan for something. Then pay it back over time. Sure that item will cost you more money than if you paid cash. Remember, you’re not spending the extra money to buy the item. You’re spending the extra money to buy a credit score!