Being Debt Free: The Story of How I Have Minimal Credit History

I’ve spent the 24 years of my life avoiding debt. Well, probably more like the last seven years because I didn’t really have a way to accrue debt before venturing off to college. But since 2007, I’ve been warding off debt with garlic, crucifixes and lots of fiscally responsible behavior.

So, color me embarrassed when I went to use CreditKarma for the first time and discovered I had a “thin file.”

What does a thin file mean you ask?

Well…“When you have a ‘thin file’, you have a limited credit history with few credit accounts, so it is not possible to provide you with a credit score. Consumers with a thin file have difficulty getting approved for most financial products because lenders are unwilling to risk lending to someone with limited credit history.”

Thus far, I haven’t had to haggle with lenders because I’ve never needed to be spotted money for college or a mortgage or a car or to start a small business or the dozens of other valid reasons to take on debt.

My father, in his infinite financial wisdom, advised me to open a credit card when I first went away to college in order to establish credit history. After all, your credit score is the one grade that matters after college. I followed his advice and have carried that piece of plastic with me for seven years. I dutifully charged a few items per month and paid them off in full, so as to be establishing this elusive credit history.

Three weeks after college graduation I moved to New York City and that credit history appeared to be sufficient because it provided me with a high enough credit score to be approved by my landlord.

Now, I’ll admit a glaring error on my behalf. After seeing my score while signing my lease back in 2011, I’d never really given it a second thought until a few months ago. I heard some great things about CreditKarma and figured I should be responsible — just like getting your dental check ups. And we all know how I feel about clean teeth.

After CreditKarma came back with that thin file notification I started to do some digging and immediately ran a credit report from Experian (for free of course) and I discovered they weren’t recognizing the credit card I’d been so diligently using for seven years!

Thanks to my debt aversion, I don’t exist to to the credit reporting agencies.

This is a problem.

Discover it

Not the original credit card…

It’s not just a problem because I have a minimal credit history, although I’ve seen my FICO score recently and I’m sitting pretty in the high 700s, but because the entire credit report structure is based on debt or debt-causing tools.

It just about sends me into a blind rage that I may be declined for a loan or given a jacked up interest rate because I’ve been fiscally responsible and been given the opportunities to avoid debt.

Recently, I was listening to one of my favorite podcasts, Stacking Benjamins, and Average Joe was interviewing Steve Stewart from Moneyplan SOS.  During the interview, Steve mentioned alternative credit scoring and a service called eCredable.

I was intrigued.

Alternative (or non-traditional) credit are payments that you don’t find in your credit reports from the big three credit bureaus. This could include payments to home payments (or rent), utility companies, cellphone providers, insurance companies and similar service providers.

Thanks to the slight complex I’d received from CreditKarma, I was relieved to read the following on eCredable’s FAQ page: “Regardless of whether you have no credit file, a thin credit file, or a credit file with negative credit information, your alternative credit information can help you in any of these situations.”

Apparently, Federal Law not only recognizes alternative credit, but under the Equal Credit Opportunity Act you can use it when someone is asking to run a credit check. So, if you’re like me and are slightly lacking in the credit history department, you can use eCredable to help give you a boost.

There is a lot of grey area when it comes to reporting alternative credit, so the power houses of Fannie Mae and Freddie Mac, that we all know and love, created a four-tiered system for the verification and use of alternative credit, which eCredable uses for the basis of their system.

The brief version of the system:

  • Tier I includes payments for housing
  • Tier II utilities
  • Tier III insurance payments
  • 
Tier IV various other payments including leases for furniture, layaway, childcare etc.

While I have yet to fork over the dough to verify my bills and run an AMP Credit Report, I do appreciate having an option to prove my trustworthiness to a future lender (should I need one). In another move, I decided to get the Discover it credit card almost purely because they give you your FICO score for free with each monthly statement (and the cash back and no annual fee).  Plus, it’s a credit card which means it should help create credit history.

Right?

I feel like I’ve fallen for that one before…

Have you had issues with a credit card not being on your report or lack of debt causing issues?

[GIF taken from Giphy and Discover it from Flickr]

Posted in Personal Finance 101 Tagged with: ,
43 comments on “Being Debt Free: The Story of How I Have Minimal Credit History
  1. Wow that’s really strange. I can honestly say I’ve never heard of that before. Nope, they seemed to have kept a pretty accurate history of my life…and I’ve also had other things like car loans as well.
    Tonya@Budget & the Beach recently posted…The Hidden Cost of Big Fitness Goals/GiveawayMy Profile

    • Broke Millennial says:

      The first time I checked my credit report it really freaked me out because all the questions to verify my identity had nothing to do with me, (ie: have you lived at this address or that address) but it pulled the right person in the end.

  2. I have never heard of eCredable, so thank you for sharing! I have a number of clients with similar issues as far as minimal credit history and not knowing how to overcome it. Working on credit is truly like having another job, and if you don’t focus on it, you can hurt yourself financially.
    Shannon @ Financially Blonde recently posted…Music Mondays – Open Your HeartMy Profile

    • Broke Millennial says:

      It’s so true. I’ve even thought about taking out a small loan with minimal interest just to up my credit score.

  3. Sarah says:

    I think the issue with your credit history may have to do with how often you were paying off the card. Were you paying it off before or after a monthly statement was generated?

    In order for your usage to be reported, you have to let a statement be generated with some sort of balance. Charging items and immediately paying them off before they have a chance to be reported does nothing for your credit. So wait for your monthly statement before paying off the balances in full. (Note: No interest is charged for this.)

    • Broke Millennial says:

      Interesting, I’d never heard that. I’ve always heard it’s best for your score/report to pay it off multiple times a month (probably plays into the whole 30% utilization ratio — which is also hotly contested). I’ll certainly be digging into what you’ve brought up. Thanks for sharing!

      • Steve Ely says:

        It won’t make any difference how many times you make a payment on an account in any given month. Creditors/Lenders report once a month, and as long as you’ve made at least one payment in your billing cycle, you’re fine.

  4. Matt Becker says:

    Wow, interesting. I hadn’t heard of that before but it’s definitely frustrating! It is kind of ridiculous how your financial “dependency” is reliant on the fact that you’ve been in debt before. Very backwards in a lot of ways, but sometimes you just have to play the game.
    Matt Becker recently posted…The Stock Market is Falling! In Other News, Grass is Green!My Profile

    • Broke Millennial says:

      It’s absolutely backwards. While agree you have to play the game, it’s infuriating that I’d have to spend money to play the game – ie: take out a loan. Even a small one, with a decent interest rate, it’s bothersome that I’d have to spend some money on interest.

  5. MMD says:

    Fortunately my Dad also encouraged me to open a credit card at a young age, and I built up a nice, strong credit history from there. While I commend people for trying to stay out of debt, I do think that regular credit use is part of the game we have to play if we want to get better rates, opportunities, etc. You don’t necessarily have to get yourself into debt. I have always been able to do this without paying a lick of interest to the credit card companies.
    MMD recently posted…Did I Just Find Another Great Retirement Saving Strategy? Understanding the SEP IRA RulesMy Profile

    • Broke Millennial says:

      I’ve had a credit card since 2007 that I use on a regular basis. That was the big shock factor about having a “thin file.”

  6. This is the problem with credit reporting. If you are fiscally responsible, then your history is lacking. If you are a debtor, you have a wide history. Since I have carried debt for some time, but am not debt free, I have a very high score and it gives me a lot of opportunities to use credit to my advantage.
    Grayson @ Debt Roundup recently posted…Frugal Isn’t Cheap Book Review – Spend Less, Save More, and Live Better!My Profile

    • Broke Millennial says:

      It’s an incredible double-edged sword. I still have a good score (according to that Discover it FICO reporting) but I’d love to be even higher.

  7. laura says:

    I feel your pain! I have a credit score in the high 700’s, no debt, use and pay off my credit card on time, pay all utilities and rent on time, and when we went to look are car loans for the first time were notified that we lacked credit history. What?! It’s very frustrating and there were plenty of ways around it (higher rates, providing more information like W2’s, etc.) but it was a pain in the butt. We didn’t end up getting the car and didn’t use the loan…but it took forever to get it done!

    The thin-file-boat is annoying!

    • Broke Millennial says:

      The irony is using a loan to pay for the car would’ve helped the thin file situation, but then you’d likely have unwanted debt.

  8. This sounds really frustrating. On the other hand, think about it from the lender’s perspective – if they can’t see your history of incurring debt and then paying it back, how will they know that you are a good credit risk? There’s your debt to income ratio, your other outstanding debt, etc., but part of being labeled “credit-worthy” is demonstrating that you’ve had credit before and have been found worthy.

    Speaking of alternative credit scores, there is something called Veritas introduced a few years ago that some lenders are already working with. Thanks for the heads-up on eCredable. That sounds really interesting.
    Well Heeled Blog recently posted…Flying… it costs big bucks to make a small worldMy Profile

    • Broke Millennial says:

      Thanks for letting me know about Veritas! I’ll need to see if it’s something I could utilize in the future.

  9. Well…I lived 17 miles from my high school so my parents paid for the gas to get us to and from school each day. They gave us a credit card that was to only be used for that. This alone gave me a HUGE head start in my credit score. By the time I got to college, even after just two years of being on my parent’s card, I had a pretty high credit score.
    DC @ Young Adult Money recently posted…5 Creative Ways to Pay for TravelMy Profile

  10. Dear Debt says:

    I got my first credit card last year at 28. My student loans were giving me a nominal to good credit rating, but apparently consumer debt counts for more? It’s so ridiculous. I never wanted a credit card, but now I have one and it’s been fairly useful. I’m building credit, but I also saw my spending go up slightly, so I’m watching that. I really don’t like how the whole system is set up, so I really want to look into that ecredable.
    Dear Debt recently posted…Let’s Talk About Debt, BabyMy Profile

    • Broke Millennial says:

      When I got my second credit card I realized how easy it is for people to fall into consumer/credit card debt. I never went over my limit nor paid late, but the idea of getting cash back and what not can really cloud your vision.

  11. I hate that a short credit history effectively works as a penalty regardless of how responsible you are with your credit.
    Stefanie @ thebrokeandbeautifullife recently posted…Four Reasons Races Make Better Investments than Gym Memberships.My Profile

  12. Steve Ely says:

    Thanks for all the great comments! I just want everyone to be clear on how we’re helping folks.

    If you want to live outside the traditional credit world (no debt means no credit), you can do that with eCredable. We are building a Marketplace with lenders who will use our score in their underwriting processes, so you can access mainstream products at mainstream finance rates. (They won’t be as good as if you had a FICO 800), but they’ll be a lot better than Alternative Financing (e.g. PayDay Lending, BuyHerePayHere Auto Finace, etc).

    For those of you that want to build a bridge to traditional credit, all of our Marketplace place partners report your payments to the big three credit bureaus after you are approved for their product. Once you have 2-3 accounts at the big three, you’ll have plenty of information in their files so they can create a credit score for you (or FICO can use your data to create a credit score).

  13. Hey, I know that podcast!

    What was most frustrating about that interview is how paying your utility bills late can affect your credit score, yet paying them on time does zippo to make your credit score better. That shows you who credit scores are really protecting.
    Joe @StackingBenjamins recently posted…Could Your Advisor Communicate Better? – with Michael Kitces – STK #041My Profile

  14. It does seem unfair when being fiscally responsible can actually prevent you from getting a loan or the best interest rate. Crazy!! I’ve worked with people who are in a similar situation. The good thing is that it doesn’t sound like you plan to buy a home or anything where your credit score has a huge influence right now. Getting another credit card and using it responsibly (which I don’t know why I bother to write because I know you will!) should help you build up your score. I am unfamiliar with e-credable but it’s great that you found another option to help you out in case you need it now.
    Shannon @ The Heavy Purse recently posted…Couples Financial Therapy: 4 Keys to a Happy MarriageMy Profile

    • Broke Millennial says:

      I’m probably at least three or four years away from getting home, but hopefully using that second card will boost my score.

  15. e_-87 says:

    I think the problem is using CreditKarma. CK does not provide your real credit score. Instead it uses a Vantage score, which is an artificial score. It doesn’t pick up on everything, which is why it probably missed your old credit card history.

    This is further proved by your ability to get a Discover card. Discover is the most conservative credit card company (even more so than AMEX) and will not give out a card without a decent credit score. Also, Discover gives you your real credit score – FICO – on your statements.

    • Steve Ely says:

      The Vantage Score (just like the FICO Score) is 100% dependent upon the data it gets from the credit bureau(s). If your creditor did not report your monthly payments to all three national bureaus, then it doesn’t matter which score you used – it would not include the credit card payment history in the credit report or score.

      • Broke Millennial says:

        Right, the bigger issue was my creditor not reporting the card. And CreditKarma does use TransUnion to generate their score so it comes from one of the 3 big bureaus.

        Great to know that Discover is so conservative. I had no idea.

  16. Ryan says:

    Credit history is tricky to understand. You may think you’re doing it all right, only to find out you’re doing it “too” right. I established my credit taking out a small private loan for college, and a small car payment while in school and working. Opened a credit card around 20 and always carried a small balance, which I always paid off on time.

    Debt is a big burden for the millennial generation, I even layed out a case for how reducing debt should be an immediate priority for us Millennials <a href="<a href="http://trendingmillennial.com/financial-goals-that-millennials-should-set-now/“>http://trendingmillennial.com/financial-goals-that-millennials-should-set-now/“>Trending Millennial Financial Goals

    Credit history will start to be a large part of our lives once we start looking for homes and other big purchases that require credit worthiness.

    • Broke Millennial says:

      Yes, debt is a big burden and the premise of this site is to increase financial literacy to help combat debt and reduce it for future generations.

      I hope by carry a small balance you just mean you charged to the card and paid it off in full each month.

  17. Pauline says:

    I moved to the UK when I was 27 and didn’t have a credit history, but thankfully the first landlord did not require I did. I took all the steps asap to build an history and was able to get a mortgage 18 months later. eEcredable sounds like a great option.
    Pauline recently posted…The French approach to debtMy Profile

    • Broke Millennial says:

      I wonder if it’s country specific and if there are other versions of the same company overseas?

      Even with a good credit score, I did still have to have a guarantor when I signed my lease because my income was so low when I first moved to NYC. It didn’t matter how much I had saved. Luckily,I do need that anymore!

  18. I cancelled a credit card in 2010 that I had since 2003 (I only wanted to keep one long-term card open) and that bank, University Federal Credit Union, never actually told the credit agencies I closed it. Because I can’t get record of it at UFCU since they no longer have any record of me being a customer, I have to start processes with each credit agencies to cancel that record. But to be honest, it’s not necessarily a bad thing since it shows up as open, unused credit with a long history.
    Tara @ Streets Ahead Living recently posted…I had my first “free” vacationMy Profile

  19. Marvin says:

    I had a thin file before as well but now I charge everything! We’re learning how to churn credit cards and just simply pay off everything at the end of the month. So now we have plenty of credit history.
    Marvin recently posted…Quality Used CarsMy Profile

  20. I’ve heard that having a thin credit history can be detrimental. That definitely wasn’t the case for us. I wish I had been as detailed in the mid 2000s as I am now, because we probably had a good $10-15k in credit card debt on low incomes. Credit scares me now. There, I said it… We just got our first rewards card recently, and it just makes me nervous LOL.
    Big Guy Money recently posted…Why I want to retire earlyMy Profile

  21. Aaron says:

    I feel the same as alot of people, but once the cards are paid off, you kinda want to do more , like pay off more loans.

  22. Nightvid Cole says:

    I don’t care if I have a credit history or not because I’m just going to pay cash for everything.

    Apart from my ability to brag about living within my means. I look forward to the day I can say I raised a family and put kids through college and have never had any debt.

    If I can’t pay cash for something, it’s too expensive. Houses included!

  23. Tim says:

    It may seem counter intuitive that your credit score is based on previous debt. However, let’s consider the origin of credit. It started largely out of individual retailers allowing people to buy goods and pay for them later. Often so that people on cyclical incomes (think farmers and ranchers) could buy goods when they needed them against the value of their harvest. Otherwise many of these people would not have been able to buy the things they needed.

    These people would only lend to those they deemed as trustworthy e.g. Those that had a history of paying off past credit in a timely manner. As a small independent retailer you had to make sure that money would be paid back. It was less about making money off of an exorbitant interest rate and more about making sure of a steady income to the lender and a way to buy goods for the lendee.

    The application of someone for large amounts credit they hadn’t needed before was seen as a risk by someone in desperation. The equivalent of an embattled madoff using new investments to pay off old debts.

    A good credit history meant that you were fiscally responsible enough to manage it when needed.

    With this said, the modern practice of using credit scores as a measure of one’s character is unfortunate. I find this idea of alternative credit very useful in the context of getting an apartment or to help in getting a job. This will likely never replace the traditional credit history for home loans, car loans, or even opening new credit cards. That’s just the way it is.

    So get a credit card, pay it off every month and check your credit score once a year to make sure that everything is kosher. Thanks Millenial for bringing this interesting discussion to light!

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