Rejected for Being Debt Free, Really?

The following is an earlier rant post I wrote when I first started this blog. Enjoy!

Everyone thinks being debt free is awesome; believe me I was in the same boat. But when an opportunity for a new dream apartment came up, I was turned down because apparently the next renter had better credit than me. By having little or no debt, the U.S. credit system rewarded me by lowering my credit score and taking a gigantic dump on my spirit.


Let me explain. Growing up it wasn’t difficult to see that credit debt ruins people’s lives. I didn’t have to look far to see my brother load up his credit card as if it were free money only to see himself in debt later – ruined, depressed and completely out of touch with any sense of hope. Or my mother, who continuously struggled to make ends meet, constantly relying on the good ol’ plastic cards to put food on the table and to make just enough money to pay down a fraction of the interest accrued every month.

Nobody could persuade me I needed to have the newest flat screen TV or the latest Apple product – and charge it all on the card. I made it my priority to stay away from credit cards and other forms of debt by paying for things only when I had the money to do so. That meant saving the $1200 for my new flat screen TV when I wanted it and purchasing my vehicle outright when the old, passed-down beat-up Volvo that cost me twice the money in repairs than it’s worth. I’m happy to say that I’ve been able to manage pretty much all of my purchases without requiring any type of credit assistance up to this moment.

That hasn’t always been the case. When time came to put myself through school, I borrowed money from the government for which I am still grateful today. Thus I have at least one line of credit today which remains (unfortunately, or maybe fortunately?) Prior to cutting up my last credit card, I needed at least two to finance my rather frugal life style at the time. Life wasn’t easy, even though the credit cards were a godsend they quickly amounted to large sums of debt with increasingly scary interest fees.


I knew that if I wanted to save any kind of money I had to eliminate my credit cards, and so it became my mission. “Spend not what have not” – became my motto and I’m glad to report it actually worked. Years later I had zero credit card debt, a simple student loan which I almost forget about now that the payments come out automatically and I am not struggling.

Life was peachy, or so I thought. No credit card debt = no problem right? Right… oh wait, no!

The day I was denied

Being a city dweller and a constant mover has never allowed me to focus on saving money for a home purchase, yet alone deciding where I want to live. You see, I’ve been a renter this whole time and came accustomed to getting what I want, where I want.

This being said, the last two years have been hell!

The place I moved to seemed perfect … on the day I moved… haha, no seriously. The next day it was a living hell hole. Loud neighbor kids kept me awake while the extreme heat made the overpriced dump of a place impossible to occupy during peak sun hours. It was time to move.

I started searching for apartments in a bit of a nicer area with a slightly higher budget this time. In Southern California it is impossible to find a perfect place at a reasonable price. So when I found a place that was ten-fold the quality of my current drain of despair at nearly the same price who would blame me for getting excited?

I rushed out to stop at the open house and quickly fell in love with the new place. Put down a deposit on the spot and turned in an app thinking this place is mine for sure. I was so confident and excited to move in – because surely there was nothing to stop that from happening, right? Wrong!

Being a responsible adult who lives more efficiently and debt-free than most people I know has actually led me to a path of low credit score. My application was rejected and the place was rented out to someone else simply because I chose to make my purchases in cash. Surely I could get another place that’s crawling with roaches but has working air, but this was the place I had been excited for. This was a true gem!

The same system that’s designed to help people finance purchases was used to deny the purchase of my choice – a lease on a place I wanted.

Thank you so much, credit system! Thanks a ton for encouraging me to take up new debt and improve my credit score! Thank you for not allowing me to live debt-free and enjoy my purchases upfront!

Is it fair to say that the system of credit was designed to enslave people into continuous debt? I think so.

How come mortgage payments count toward your credit score while rental history doesn’t? How does that make sense? Why does the responsible adult who seeks to pay in cash but cannot afford a large purchase have to suffer?

This just doesn’t sit well with me. How is the debt slave allowed to make purchases I am not? The system is imperfect. It separates the irresponsible from the honest people who pay on time, yet segregates a group of people who choose to have the money at the time of purchase instead of financing. No one should be rejected for choosing to opt out of credit card use, mortgage payments and cell phone plans.

Sometimes it helps to be dependent on credit lines. For the fortunate ones who seek to follow my footsteps – learn a lesson, build up your credit even though you don’t need to. Pay those absurd credit card fees, buy the latest products, become synonymous with consumerism and waste – after all that’s what credit cards are for: spending.

Have you experienced anything like this, or am I the only one to suffer such fate?


  1. I know there is a way to have your rent payments count towards your credit score, but I have had a credit card for so long that it was unnecessary for me to look into it. Perhaps your mortgage lender can help you get the rental history counted? It is true, though, that having debt – or more specifically a history of paying loan payments on time – really helps your credit score. But you are right, you are penalized if you do not have history of having debt! It’s strange how that works.
    DC @ Young Adult Money recently posted..Lost Your Job? 5 Things To Do Right AwayMy Profile

    • Right, I’ve heard of people making their first home purchase getting their rent history counted, but for someone who’s just looking for another rental to be denied on a whim is wrong.

  2. There’s actually legislation proposed right now to have utility payments be reported to credit bureaus, but it’s a bit controversial. The legislation is meant to help those with little credit history build one, but it’s controversial because apparently big swaths of people are also pretty regularly late with utility payments because of regulations saying when utilities can and can’t be shut off that gives them lots of leeway. But at least people are starting to think about what happens to people who don’t use credit regularly in our system.
    Mrs PoP @ Planting Our Pennies recently posted..What Do You Mean, Average?My Profile

    • Very interesting. I can see there being a big debate on this type of leeway with credit granting. I’m curious where I would stand on this issue… hmmm…

  3. I never understood credit checks for housing. My parents credit is horrendous, but they have never been late on their rent in almost 35 years of being married.

  4. Wow, I can see why you would feel the way you did. Situations like this joint pinpoint some of the deficiencies of the credit scoring system. I think it’s possible to have the payments on a credit report, but not certain how. At the very least i think it should be listed on the report if not impacting the score so landlords can see your good history.
    John S @ Frugal Rules recently posted..How to Spend Money Like the GovernmentMy Profile

    • Maybe we could have 2 systems, 1 for credit scores (same as it is now) and a separate for leasing history scores or something? That might make more sense than clumping it all into 1 score. Although that would be a nightmare of a scenario for tracking of additional documentation not to mention the costs involved for the country as a whole.

    • Luckily the new place I moved to didn’t care about my credit history. They said, as long as you make X amount of monthly income, you’re welcome here.

  5. I have a friend who went through this same thing. And since I became debt free a few months ago, I’ve definitely seen the drawbacks of not having credit/credit history. It’s actually quite ridiculous! Like you mention, it’s like the government and society are punishing people for taking control and being financially independent because they want us to be “slave to the lenders” our whole lives. It sucks…the system is broken.
    Carrie Smith recently posted..How to Make Traveling a Priority on a Limited BudgetMy Profile

    • I’m glad you feel the same. The way credit rating system is designed in theory is a good idea, but in practical application is not perfect. I don’t believe people should have to use lines of credit as means of proving they are cable of making consistent payments.

    • I hope everyone who reads this post and can associate, will share their story with us and leave a comment here with link to their story.

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  7. The only debt we have right now is the mortgage but we pretty much have the cash to pay it off. When that is officially gone we are now left with the bills we pay such as cable, internet and utilities which all help with our credit in Canada. We also use our credit cards each time we shop so again that shows on our report and whether or not we are paying on time etc. I think that’s awful what you had to go through but each credit system is different and for the most part we don’t all know what all they look at. Who would have thought being debt free could cause so many problems. Thanks for sharing. Mr.CBB
    Canadian Budget Binder recently posted..Reader Question:Is It Savvy To Cash In My RRSP’s To Pay Off Debt?My Profile

  8. I set my rentals at 100 bucks less than the market so that I can get my pick of quality renters. We usually get a high application rate, I look at credit score, their debt to income and how much in savings. We reject the high credit scores with high debt, they pay their bills but can’t manage their money. Of the years I have looked at hundreds of applications, I have rarely encountered anyone with a low credit score and no debt. In 10 years of rentals I have only had 1 late payment, and it was because she didn’t transfer money in time. A high credit score doesn’t guarantee rent, but I look at the behavior of the applicant.

    A solution is to have automatic payments on your credit for cell, internet and cable. Every month my card gets charged, I earn points and pay the balance off. You can pay with cash for everything else. recently posted..Why your home is keeping you poor, turn your home into an income streamMy Profile

  9. Veronica – I hear ya! The FICO score system is a one-sided measurement of debt, and a bunch of us are tired of being included in a game where we don’t want to play!

    Have you heard of It’s a service that allows you to have a 3rd party (eCredable) verify your payment history, including those that are NOT debt, and prove to any lender/insurance company/renter that you aren’t a deadbeat. The Equal Credit Opportunity Act requiers any lender that uses a credit score to rate you must consider anything you provide them that proves your credit worthiness. Use your past rentals or your monthly cell phone payment to anyone that pulls your traditional credit score and show them what you are made of!
    Steve MoneyPlanSOS Stewart recently posted..Credit cards are harming your neighborhoodMy Profile

    • I ran across it on one of the PF blogs. This was after I wrote the post.

      I’m curious though, do you think a small time (private) company with only a few rentals would exercise honest judgment and consider eCredable verification?

      I mean, what’s to stop them from just going with the sure thing (high credit score)? The company I dealt with (more like 2 people and an LLC with few properties) don’t seem like the type of people to bother with that sort of thing. I can see how it was easy for them to make that decision even though in all fairness I was a qualified applicant by all means.

    • That’s the reason I had one credit card in the past. I ended up canceling it because I didn’t think it would be difficult to get approved for a lease based on income and savings alone. Learned the hard way.

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  15. Did you close all your old credit accounts after you paid them off? Best to leave at least one open as long as its not costing you anything. Thats what I do Ive got a rewards card that I pay in full every month gives me like 1.x percent back on anything I buy and keeps the credit history going while costing me nothing.

    If the student loan account is still open Im surprised that with no debt wouldnt give you a decent credit score out of the gate as long as youve always paid it on time.

    Ive got a good credit score and am getting out of debt only a few k left on the car and like 10k left on the student loans. Im wondering if my score will change for better or worse once those accounts are closed…

  16. Thanks for posting this. I have been debt free since I sold my house six years ago and purchased a smaller home, which I own outright. I also payed off my car and and my credit cards and closed my credit accounts. Since then, I have not missed a utility payment and have not opened any new credit accounts.

    I recently moved, having accepted a new job, and I just received my first pay check, which my new bank has placed at nine day hold on — I only have $200 cash remaining, so I asked the bank for a small personal loan ($1,500) to cover food, gas, and rent (I did not sell my previous residence) for the next week and a half. This was denied for lack of credit!

    I requested a copy of my credit report and it shows that I have poor credit because I have failed to maintain the financial system mandated lines of credit for the past six years. It also shows that I payed of a $370,000 home loan, without missing a payment. A $25,000 car loan, also without missing a payment. Several credit cards payed in full. No missed utility payment either. Apparently this is what the definition of bad credit is these days.

    Despite having an income in the six digit range, it looks like I will be eating bell peppers and beef, without the beef, for dinner.

    If anyone else is thinking of being “Debt Free,” here is some advice: maintain your lines of credit, use them only for token purchases, and pay them off religiously every month. That way if you ever need your credit score again, it will still be there when you need it.

  17. If you want to live debt free, then you should live with your parents while you save up to buy a place. Sorry, but the debt-free-lifestyle sort of requires you to jump in with both feet.

  18. Very interesting topic here! There is no question about it that managing a credit score at times can feel like trying to walk across a tight rope that’s 50 feet high with no safety net. This has historically been a problem for consumers since day one, mainly due to lack of understanding or in some cases a genuine lack of interest at all. Lenders want to see that your engaged in some type of financial commitment where your payments are consistently on time. They also want to see that your paying some on the principle and not just the minimum payment on the interest. It is what it is, remember lenders are in this thing to make money! Here is some good related info

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