I was raised on the idea that I need a credit score to buy a house or car — but do I really need to live a life that involves debt?

A brief history of credit scores

The idea of borrowing on credit is an age-old concept. But FICO, the first U.S. credit scoring model, was introduced in 1989. Since then, other scoring models have been launched, but FICO remains the gold standard for assessing borrowers' creditworthiness.

FICO scores range from a low of 300 to a high of 850. As of the third quarter of 2023, 1.54% of U.S. consumers had a perfect 850 FICO score, reports Experian.

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Why do consumers need credit scores?

Credit scores are utilized by lenders to get a sense of borrowers’ risk profiles. FICO scores are calculated using five metrics:

• Payment history, which speaks to whether you pay debts on time or fall delinquent
• Credit utilization, which speaks to how much of your available credit you're using at once
• Length of credit history, which shows how long you’ve held your accounts
• Credit mix, which reveals the types of credit accounts you have
• New credit, which shows how many recently opened accounts you have

A higher credit score indicates to lenders that you’re a reliable borrower and that there’s less risk in loaning you money. A lower credit score serves as a warning that you may be more likely to fall behind on payments based on the data that’s on file. That data is compiled by the credit reporting bureaus — Experian, TransUnion, and Equifax.

Lenders commonly use credit scores to determine not only whether you qualify to borrow money, but what interest rate to give you. The higher your credit score, the more likely you are to snag a lower rate.

Can you get by without a credit score?

A study released by TransUnion in 2022 found that 8.1 million consumers in the U.S. were “credit unserved” — meaning they had never opened a traditional credit product, such as a credit card, personal loan or auto loan. You should know that it’s possible to function without access to credit. And there can be benefits to paying for all of your expenses in cash, such as not racking up interest or worrying about being late with a bill.

But whether it’s feasible to meet all of your financial goals and manage your needs without credit is a different story. There’s absolutely nothing wrong with deciding not to use credit cards, since they’re notorious for charging large amounts of interest on balances that aren’t paid in full. However, while it may be possible to fuel up your car or buy groceries for the week without swiping a credit card or borrowing money in some shape or form, paying for larger purchases can be more of a challenge.

In July, the median existing-home sale price in the U.S. was $422,600, according to the National Association of Realtors. Most people don’t have hundreds of thousands of dollars sitting in the bank to do things like purchase a home outright.

Similarly, Edmunds reports that the average transaction price of a new car was $47,616 this past June. That, too, is a sum of cash not many people have access to in one fell swoop.

If you find yourself in need of a mortgage or auto loan, it can be difficult to obtain one with no credit history. However, there are some lenders who might be willing to work with you. But you may have to give proof of a stellar payment history on bills and provide a large down payment.

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Building credit without a traditional credit card

All told, while you could maintain a lifestyle that doesn’t rely on credit, that might mean never owning a home or having to wait a very long time to purchase one in cash. You may therefore want to land on a compromise that has you steering clear of credit cards but relying on credit for major life purchases like a house or car.

Of course, to that end, you’ll need to work to build up some credit. But it’s possible to do so without using a traditional credit card.