The U.S. Credit Market is Closed to People with No Credit

I received a comment the other day on an old post (Have You Said “No, Thank You” To Credit Cards?) that I think everybody should read. Despite this reader’s best intentions to avoid credit (and essentially boycott the credit card industry), he’s now stuck unable to buy a home at age 29 even though he has $20k saved. Even worse, he can’t even get a simple low limit credit card to begin building credit. To him, and presumably many other Americans, the credit market is totally closed. Read his story now:

I am 29 years old and I’ve never had a credit card.

Ever since high school I’ve known that the entire credit industry is a scam, that interest rates and fees are a shell game, and that once you fall just a little bit behind, it can be impossible to catch up. I’ve seen friends get into serious trouble with cards, and think they could solve the problems with more cards. I’ve always been perfectly happy without a card, and only use my debit card for online/phone purchases. Phone bills, insurance, etc comes directly out of my account. Here’s the rub… I’m in the process of trying to buy my first house, and while I have managed to save $20,000 for a down payment, I can’t get a loan because I have no credit score. For the last month, I’ve been running around and racking my brain trying to figure out how to get credit.

The credit market in the US is CLOSED! No one seems to understand this. The card issuers are up on capitol hill screaming and threatening and begging to continue the shell game, and meanwhile they’re purging their books, lowering limits and raising interest rates, and issuing a hell of a lot less cards. You can’t get a new card in 2009 without PERFECT credit. People are giving me well-meant advice, which would have been good back in ‘05, but which is not relevant today. Things like “get a store card or a gas card.” Store cards are extinct. Done. They bit the dust. Stores like best buy and home depot have cards issued by major banks, which are not easier to get.

I can’t even finance a piece of furniture. Its all run by Wells Fargo, and requires a credit score. I’ve even been turned down for a secured card by Bank of America. Bank of America needs $34 billion to stay solvent, and when I offered them $500, they said no thanks. Bottom line, having no credit card bill is great, but its all set up for us to be owned by about 12 banks. You can play their game and win it (by managing your credit according to the FICO computer’s logarithm) or you can stay outside the system completely. There is no happy middle.”

I have to sympathize with this reader. It’s unfortunate, but it is a reality that you have to play the credit game if you want to own your home before you can pay cash (which, for most of us, would take decades). I offered some suggestions on how to build credit from scratch the other day, although it seems like this reader is trying many of these suggestions and striking out.

What would you recommend he do?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


  1. I’ve always heard that when in this situation you would need to find a mortgage company that does manual underwriting. You may have to be really persistent with the mortgage companies out there because they don’t like to do this since it causes more work on their part. I would make sure when you talk to the mortgage company you speak with someone in management about this possibility. Not all mortgage companies use manual underwriting nowadays so you may have to ask quite a few. I would think with the housing market the way it is though, that it would be worth it.

    In addition to this I did some googling and found a good article about manual underwriting here:

  2. Jonathan says:

    Has he tried getting a credit card through his bank? I assume (perhaps incorrectly) his 20k isn’t in cash in a box under his bed. Perhaps he could go to a branch and state his intentions to the branch manager. Indicate that he is looking to get a credit card to build his credit, note that he has 20k in their bank and that he’d like to get a mortgage with the bank as well.

    I have everything at one bank, and have for almost 15 years and they treat my like royalty. YMMV of course.

  3. Perhaps he could have a parent or trusting friend with great credit co-sign on a small personal loan of like $1,000 from a bank (which he immediately pays back), or a credit card to just use sparingly to get himself on the grid. I am sure he knows someone who would be willing to help him out knowing the situation.

  4. He could try to find a house with seller financing. That is, avoid getting a loan from the bank and just pay the person directly. Get a good lawyer to make sure everything is setup correctly.

    p.s. It’s “algorithm”, not “FICO computer’s logarithm”.

  5. Bank of American might not be interested in your $500, but have you looked into a local credit union for a secured credit card or loan? These not-for-profit financial institutions are weathering this financial storm in much better shape than the commercial banking industry. I can say my credit union doesn’t even consider your credit score when issuing secured credit cards or loans, they simply look at your debt to income.

    Also, another trick is to be added as an “authorized user” to another’s credit card. Providing they pay on time and carry a low balance, you will gain much needed points that way. The best part- that person never even has to give you a card! FICO was considering doing away with this in their FICO 08 scoring, but due to much scrutiny decided to keep this policy intact.

    Best of luck, though, things will get better!

  6. Rather than worrying about his credit, he should ask him why he wants to but an asset that could lose 20 percent of it’s value over the next year.

  7. What about starting out with a secured credit card to build his credit report file? There are even secured cards available that transition over time to a regular, traditional credit card with proven good use.

  8. There are several options. Mine personally was getting my girlfriend to co-sign on my CC application. Luckily she had stellar credit (She did the auto-billpay for everything).

    – Have someone you trust co-sign on your card application
    – Have someone put your on their card as an authorized user
    – Take out a personal loan
    – Take out a car loan
    – Try obtaining a credit card from a LOCAL bank or credit union. (AVOID big banks!!!)
    – Get a secured credit card.

    If you cant get any of these options done, you may want to try and do an “e-mail carpet bomb” at some of the banks that took TARP bailout money.
    I would plead with them that you would be happy to give them money if they only gave you the chance. (Yes I know I said avoid big banks but this may be an option. I personally hate them but they are an evil you must sometimes deal with)

    As it stands right now, there is nothing wrong with credit cards if you treat them as a debit card. Just put your normal transactions on the card and pay it off in full every month. It sounds like the OP knows how to budget so they should have the will and common sense to log their spending. If I ever come across a situation where I want to buy something, I ask myself “Is it a want or a need?” that usually gives me enough pause to put it back on the shelf. Heck, I’ve debated over spending $5 one time. :)

  9. ^^^ This is me.

    I want to thank David for the nice write up, and all of you who posted for your advice. Here’s where things stand now…

    — My own bank (which is relatively small) actually cold-called me and said “We noticed you have a lot of money in your checking account, and wonder if you’d like to come into the branch to talk about investment options. Its pretty much a case of one hand not knowing what the other is doing.

    — I do have some good news. I applied for a joint credit card with my dad from BB&T (who made it through the stress tests pretty well) and was approved for a huge limit, although we opted for only $1000. I’m expecting that card to arrive within the week.

    — I also attempted to finance a mattress from Mattress Discounters with my mom as a co-signer. They use wells fargo though, and WF even rejected me with my mom signed on, even though she has good credit. I’m now in the process of trying to find a furniture or bedding store which finances through someone other than WF. IF ANYONE HERE KNOWS OF ONE, I’D LOVE TO HEAR ABOUT IT.

    — I’m also waiting to hear back on an application I filed for a secured “union plus” card which is issued by HSBC and offered through the AFL-CIO. If I don’t get that, an inquiry to my parents’ credit union will probably be my next move.

    — I work as a sailor in the merchant marine, and trying to figure out whether or not I’ll be able to get a good score by the end of summer. If not, I may have to return to sea for a few months. I am thinking of prolonging my stay as long as possible though, since it would be worth it to me to catch the $8k tax credit.

    Thanks again for all your help. The carpet bomb suggestion is definitely novel, and might be worth a try too.