Liz Weston

Dear Liz: As I counsel my teenage kids about their personal finances, I am wondering if they can live without a credit score. It is puzzling that to get a good credit score, you need to have debt, or at least a credit card. Wouldn’t living debt free be best? With FICO scores becoming de rigueur, is it reasonable for anyone to get away with no credit score at all, especially if the only debt they would consider is a mortgage someday? Also, the credit reporting companies now have some adjunct services that provide reporting based on payments for rent and utilities that might be helpful. How effective are those reports?

Answer: Credit scores aren’t meant to gauge how well you manage money. They’re meant to gauge how well you handle credit. If you don’t have and use credit, you won’t have scores, and lenders will be reluctant to extend you credit when you want or need it.

You also may have to pay higher deposits for utilities, miss out on the best cellphone deals and have trouble renting an apartment. In most states, credit information helps determine property insurance premiums as well. In fact, your credit may matter more than your driving record in determining auto insurance premiums.

It’s a myth that you must be in debt to have good credit scores. You just need to have and lightly use a credit card, and you should pay it in full every month. Another option is a credit builder loan, through which the money you borrow is placed in a savings account or certificate of deposit for you to claim when you’ve finished making 12 monthly payments.

There are services that will add rent and utility payments to your credit reports. The most commonly used versions of the FICO score, however, don’t include that information in calculating scores.