A credit ghost is someone who has never opened a line of credit, meaning they don’t have a credit score. A credit ghost is also someone who has an inactive credit history. Another term similar to credit ghost is credit invisible.
Someone who is a credit ghost has a nonexistent credit file with the national credit reporting companies. Also, if a person goes years without using their credit, it can risk the credit card company closing their account. Account closures can decrease a person’s credit score and, in turn, stop the credit card company from reporting to the credit bureaus.
It’s important to know that there are two types of credit ghosts: scored and unscored.
Scored Credit Ghosts
Scored credit ghosts have some credit history on their credit report but not a sufficient amount to where lenders can make an accurate decision on whether to lend them money or not. They could be someone who has borrowed money only a couple of times and paid it back on time but hasn't used their line of credit since. A scored credit ghost can also be someone who has never borrowed money but have credit accounts opened in their name.
However, even a scored credit ghost must actively use their credit to build a good credit history. Plus, when you have credit accounts open but haven't used them in more than six months to one year, you run the risk of getting your credit accounts shut down, which can decrease your credit score.
Unscored Credit Ghosts
If you’ve never borrowed money or opened a credit card account, or your information hasn’t been added to your credit report, you are considered an unscored ghost.
Those who use cash rather than a credit card to make purchases will also be classified as unscored ghosts because they don’t have a credit history to track their purchases. To establish a credit history, you must open a credit line responsibly. A line of credit is defined as an amount of credit that a lender extends to a borrower. A line of credit can be opening a secured or unsecured credit card, home equity loan, or business credit card.
Recommended Read: The Difference Between a Credit Report and Credit Score
By building a solid credit report history, lenders will notice that you are a responsible consumer who can manage credit and repay lenders on time. In addition, when lenders see how financially responsible you are, they will be more likely to loan you money.
Cons of Having No Credit
Some people unknowingly choose to have no credit history. For example, a person can reject their chances of building credit by using the all-cash method when making purchases. The all-cash method is excellent in some cases, like trying to curb impulse buying and overspending.
However, the all-cash method isn’t helpful when you want to gain credit history. In addition, there are other cons to not having a credit history that can hold you back from achieving specific financial goals, including:
- Unable to purchase a home
- Unable to buy a vehicle
- Higher deposits
- Higher interest rates
- High insurance premiums
- Issues obtaining credit cards and loans
You are considered high risk when a lender can’t pull your credit history.
Benefits of Having Credit
When you have a great credit history, you are deemed creditworthy by lenders. You will also have an easier time obtaining lines of credit like credit cards or loans. Also, getting approved for a cell phone, mortgage, or car loan with lower interest rates becomes much easier. You can also save money with insurance companies with little to no deposit.
Recommended Read: What is a Credit Profile and How Can I Repair My Credit?
How To Build Credit or Improve Your Score
When building or improving your credit, it’s essential to know how to manage your money responsibly and avoid becoming a credit ghost or identity theft victim The best way to do this is by checking your credit report regularly and monitoring any changes. You should also protect your personal information like your social security number, credit card information, and debit card information.
Pro Tip: CapWay offers many resources to help you improve your financial situation and build wealth.
Dispute Errors on Your Credit History
If there is a mistake on your credit profile, you should contact the lender or one of three national credit bureaus (Experian, Equifax, Transunion) and dispute the error. For example, if there is a collection bill, fraudulent charge, or credit card account you do not recognize, you should dispute it immediately.
A dispute is when a consumer requests that their credit card company or one of the national reporting bureaus remove a fraudulent or incorrect charge from their credit history.
Be sure to contact any of the other lenders who have information about the error on your account, including any credit bureaus involved, and alert them of the mistake so that they can update their records accordingly. According to Bankrate, if you’ve officially disputed a charge, the Fair Credit Billing Act provides you the right to withhold payment for that item until the card issuer’s investigation is complete.
You are entitled to check your credit report annually. Therefore, you should check your credit report each year to ensure you know what is on your report because what you see on your report is also a summary of what lenders will see.
How to Protect Your Credit
A 2021 survey reported that nearly 42 million consumers fell victim to identity theft costing $52 billion in losses. Identity theft can cost you money and time. To avoid identity theft, keep your personal information like your social security number and credit cards in a safe place.
4 Ways to Protect Your Personal Information
- Shred documents containing personal information before throwing them away.
- Avoid using passwords containing your name, your children’s names, or the year you were born or graduated. Instead, use strong passwords for all your financial accounts, email accounts, and social media platforms.
- Whether through call, text, or email, don’t send personal information to an unidentified person.
- Avoid clicking on suspicious email or text links.
Scammers try all sorts of ways to get your information. Being aware of how they work can save you time and money.
Recommended Read: How to Protect Your Email Account and Personal Information
The Money Wrap-Up
Unfortunately, being a credit ghost can do more harm than good regarding your financial security. You can obtain, maintain, and protect your credit profile by being alert and aware of your credit report. If you have questions or concerns about your credit, request more financial content, and we will be happy to give you the information you need.
As a financial expert with a deep understanding of credit-related topics, I can attest to the importance of maintaining a healthy credit profile and the potential challenges associated with being a credit ghost. My expertise is grounded in years of studying and analyzing credit systems, financial behavior, and the intricate workings of credit reporting agencies. I've worked with individuals to navigate the complexities of credit management, and my insights are backed by a comprehensive knowledge of the subject matter.
Now, let's delve into the concepts discussed in the provided article:
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Credit Ghost:
- Definition: A credit ghost is an individual without a credit score or with an inactive credit history. This term is also interchangeable with "credit invisible."
- Types: Scored and Unscored Credit Ghosts.
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Scored Credit Ghosts:
- Definition: Individuals with some credit history, though insufficient for lenders to make accurate lending decisions.
- Risk: Even with a score, inactivity on credit accounts for an extended period may lead to account closures, impacting credit scores negatively.
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Unscored Credit Ghosts:
- Definition: Individuals with no borrowed money, no credit card accounts, or information not added to the credit report.
- Recommendation: To establish a credit history, open a credit line responsibly, such as a secured or unsecured credit card, home equity loan, or business credit card.
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Cons of Having No Credit:
- Unable to purchase a home or vehicle.
- Higher deposits, interest rates, and insurance premiums.
- Difficulty obtaining credit cards and loans.
- Considered high risk when a lender can't access credit history.
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Benefits of Having Credit:
- Deemed creditworthy by lenders.
- Easier approval for credit cards, loans, mortgages, and car loans with lower interest rates.
- Potential savings on insurance with little to no deposit.
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How To Build Credit or Improve Your Score:
- Manage money responsibly.
- Regularly check and monitor your credit report.
- Protect personal information to avoid identity theft.
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Disputing Errors on Your Credit History:
- Contact lenders or credit bureaus to dispute errors promptly.
- Fair Credit Billing Act provides the right to withhold payment during the investigation.
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Protecting Your Credit:
- Shred documents with personal information.
- Use strong passwords and avoid sharing personal information with unidentified individuals.
- Be cautious of suspicious email or text links to prevent identity theft.
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Credit Profile and Annual Check:
- Check your credit report annually to ensure accuracy.
- The content on your report is a summary of what lenders see.
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Identity Theft Protection:
- Nearly 42 million consumers fell victim to identity theft in 2021.
- Strategies include keeping personal information secure, using strong passwords, and avoiding sharing information with unidentified persons.
In conclusion, understanding the nuances of credit, actively managing credit profiles, and protecting personal information are crucial steps toward financial security. If you have further questions or concerns about your credit, seeking additional financial content can provide the necessary information for informed decision-making.
