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Ahh! The Many Joys of Credit

If you couldn't tell from the gif, the title of the blog is a tad sarcastic. Continuing in the vein of my previous post about living your life according to your values, I want to introduce one of mine: Fierce Finances. I know, I know. Some of you are like how can finances be a value? And others are thinking, this comes as no surprise given what I do. This brings me to an important point: values are deeply personal and don't have to come with a name that means anything to anyone but you.

So. Fierce Finances to me means autonomy, choice, freedom, control and peace of mind. It's a lack of worry and inhabiting trust. It's about learning and sharing knowledge so others around me can grow (hence why I blog and coach!). It's about making sure I have enough. It also is about righteousness and restorative justice (combating systems that continuously hold people back), fairness and logic. I am passionate about finances and I feel like the financial system of the United States has let more people down than it has built up, and so I fiercely push for others to learn as much as possible to make their own decisions on how to deal with finances. When I'm living fully in this value (i.e. when I'm blogging, learning, coaching, budgeting, choosing how to spend my money etc.), I feel at peace and alive.

This post, however, is about a time when this value was dishonored, and it centers around the credit system.

I got my first credit card when I was fresh out of college, and I hated it. I did not like the concept of owing people money, and it was illogical to me that I had to be in "responsible debt" in order to prove to people that I could pay for things. Isn't it more logical that if I am debt-free, that I can pay for what I want? I didn't realize it then because I didn't have the language, but participating in the credit system felt like dishonoring my value of Fierce Finances. So I stopped participating. I had that initial credit card for about 3 months and then I closed it. Since then, I have paid for everything in cash, waiting and patiently saving until I had enough.

My decision to not participate in the credit system came to a head in the last few months while trying to buy a house. My sister and I were planning on purchasing a house together. She has stellar credit, and I have no credit. I want to be clear - I don't have bad credit, I have no credit. Let me break this down even further. When banks are deciding to give you a pre-approval for a house, they look at your credit score and your credit report. They are two separate things. A credit score is basically your grade, like in school. A credit report is like your report card, i.e. Denée was too talkative in class, but shows a real grasp of the material. (Thank you MAHA for that metaphor!). So the banks didn't have a credit score (or grade) for me, but they did have my credit report, which showed ample proof (paying off student loans, paying for my car etc.) that I was fully capable of making regular payments on time. Because I didn't have a score, they would not lend to us jointly, as we desired.

And this is why I find the system so illogical. You require proof that I can pay what I say I can, which you have, but because I don't have a number associated with that proof, you won't lend to me. This is where the trampling of my value of Fierce Finances comes into play. I wasn't mad because I couldn't get what I ultimately wanted - a house; I was mad because their reasoning made no sense! This system is not built to recognize or benefit those who are intentional with their finances. I am not saying that those who use credit are not intentional. In fact, the majority of people in my life use credit responsibly on a regular basis. But if you look at the credit card debt in America, $770 billion in the first quarter of 2021 alone, they are in the minority. I say all this to say, the system tends to hurt more people than it helps and that is what violated my value of Fierce Finances.

This brings me to my second important point: sometimes living in your values is hard. I chose not to participate in the credit system and not getting a mortgage was part of the consequences of that decision. The beneficial consequences of that decision have far outweighed the detrimental ones, but still detrimental ones will come. Just because it is hard, though, does not mean you shouldn't persevere. And in those hard times can come some deep learnings, about yourself (am I strong enough/willing to stand up for what I believe?), and about the situations themselves.

Here are some of the practical things I learned from this situation. These are especially relevant if you, like me, do not like participating in the credit system. (I am not advocating that you don't participate. Your participation is a decision you must make fully on your own.)

  • Banks do pay attention to non-traditional credit: Until recently, banks only paid attention to traditional credit (loans, credit cards etc.), but in the last few years (lucky for me!) non-traditional credit is also being considered as qualifying for a mortgage. If you have no credit score, banks are willing to create a non-traditional credit report with you. This involves different underwriting for the loan, so may result in a higher required down payment, but it is an option. Some examples of non-traditional credit are: rental payments, rental insurance, utility bills, and child care among others. Because of this, I am now renting an apartment to prep for future homebuying.

  • Secured Credit Cards: You can also get a secured credit card. Most credit cards are unsecured in that you do not have to put up collateral in case you don't pay. With secured credit cards, you do. You provide a certain amount up front, between $200 - $3,000, and that becomes your "borrowing" limit, so you are essentially borrowing from yourself. The company that provides you the secured credit card reports your regular payments to the three credit bureaus, increasing your credit score. Eventually, depending on the company, they will return your collateral and bump you too a regular credit card. To see some viable secured card options, look here.

What I learned about myself in this experience is that I am willing to stand by my values, despite the naysayers, but that at times, I may need to find creative ways to do so, such as the two listed above, so I can still reap what is possible in our financial systems. There are always ways to live in honor of your values, and believing that there is only one way is just a perspective our society has taught us to hold. It is not the truth.

How will you be creative about living your values while benefiting yourself financially? Feel free to drop some suggestions of ways to do so in the comments so others can learn too.

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