Living Debt-Free Just Got Easier
Americans sure do love debt, don't we? And maybe there's nothing wrong with being a credit-happy culture -- arguably, by allowing consumers to buy big-ticket items while spreading the payments over time, credit substantially enabled the mass production, and mass affluence, that characterized the 20th century.
But even if there's nothing wrong with debt, there is something wrong with the role that debt has come to play in our society. It is becoming less of an option, and more of a requirement, to participation in many walks of American life.
It's very hard for anyone to buy a house without debt, particularly in a coastal area -- in part because the availability of long-term, fixed-rate, self-amortizing mortgages has allowed the price of property to rise. And in order to qualify for a mortgage, you need a long credit history, which means that you must take on other sorts of debt just to prepare yourself for taking on an even bigger loan.
As we've groomed our credit scores, we've made them useful tools for people who don't want to lend us money. Many employers now use credit checks to vet potential hires. My car insurer uses credit scores to price its product. Landlords and utilities use them to decide whether to sign a contract with you.
It's not that you literally cannot live without a credit score. There are still a few companies that manually underwrite mortgages, and there are insurers and landlords who will deal with you even if there's nothing on your credit report. But it's harder, more laborious and potentially more expensive. Which is a conundrum for folks who would like to live debt-free. Or expats who move here and suddenly find that they can't qualify for so much as a bank credit card.
Fair Isaac Corp., which provides credit scores, is stepping into the breach. It's testing a new scoring system for people who don't have a traditional credit history, drawing instead on utility and telecoms data. People who don't borrow -- but do pay their utilities on time every month -- will now have a metric that certifies they're decent credit risks.
My column, like most columns, tends to focus on bad news, from social problems to failing companies. But I'm happy to say that this is not one of those columns. This is a great idea, even if a tad overdue. Obviously it gives people who are outside the credit system more access to credit, and it's good for companies that now have more potential customers. But it also makes it easier not to borrow, because giving up debt will no longer mean foregoing all the benefits of a solid credit history. If it works, this will be one of those happy stories that's good for everyone.
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