Maybe we are naïve, but prior to a couple of years ago Dave and I had never heard of the term “credit ghost” or for that matter “financial ghost” and “financial ghosting”. What we have come to find out is that these terms sometimes get used interchangeably. They do however have very different definitions:

• Credit ghost is when someone lacks a credit history with one of the nationwide credit reporting companies. “Unscored” consumers who have a credit file, but the data is too sparse or too old to produce a credit score are also considered credit ghosts. In 2019 Equifax reported that there are approximately 91.5 million credit ghosts in the U.S. What Is a Credit Ghost? By Bev O’Shea Aug 19, 2021
• Financial ghost is ignoring debt, making poor financial decisions and not paying your bills on time or at all, resulting in serious long-term financial consequences. 4 Signs You’re Ghosting on Your Financial Obligations By Liz Hansen October 31, 2017
• Financial ghosting is an illegal practice whereby two or more market makers collectively attempt to influence a stock’s price. Ghosting By Adam Hayes December 06, 2020

This blog is going to focus on “credit ghost” and I bet right now you are scratching your head and asking yourself, “What does credit ghost and RVing have in common?”

Actually, more than you think!

Of course, we have our own experience, but we have also talked to a lot of people around the campfire and we belong to many Facebook RV pages. Many people who own a home but are on the cusp of going full-time face a pretty important financial decision: We sold our house and have money in the bank. Should we pay everything off so we are debt free as we travel, or should we keep money in the bank and continue making payments on the car, boat or RV?

There are as many answers as there are people.

Disclaimer: To be clear, Dave and I are not accountants, tax preparers or financial planners. What we can share with you are some examples for you to think about in making your financial decisions when it comes to things like buying an RV outright (cash) or financing it.

Example One, Paying off Loans

When Dave and I were preparing to buy our new 5th wheel, we wanted to make sure our credit score was in tip top shape. We were current in our mortgage and car payments and had zero balances on our credit cards. We did have a smaller personal loan for home repairs. Thinking it would help our credit score, we paid off this personal loan before applying for an RV loan.

When we made out the financing paperwork, imagine our surprise when we found out that by closing out the personal loan, we actually HURT our credit score and increased our interest rate! What we were told by the finance company was that having the account open demonstrated a consistent payment pattern. Closing it eliminated an example of a consistent payment history.

Example Two, Credit Ghost

In our travels we met Stu and Pam. They both had worked full-time their whole lives. When they decided to go full-timing they had a small mortgage left on their house. Stu and Pam had two vehicles, a pick-up truck and a car. They also had a paid off travel trailer. The truck was paid off; they had a loan on the car. They had several zero balance credit cards. On some Stu was the primary and Pam was the authorized user, and on some credit cards Pam was the primary and Stu was the authorized user.

When they decided to go full-timing they didn’t want to have any financial debt while traveling. They sold their house, the truck and the travel trailer. With the proceeds from the sales, they paid off the house and the car. They closed all of their credit card accounts except one that Stu was the primary on that he had had for many years. They decided to pay cash for their used motorhome. They lived full-time for 8 years before deciding they wanted to come off the road and buy another house in a retirement community.

This is where the financial problems for Stu and Pam started.

Both of them relied exclusively on their social security income. When they filled out their loan application for the new house, they found out Pam was a “credit ghost”. While they did not owe anything and they both had income, Pam no longer had a credit score. Remember, she was “just” an authorized user on Stu’s credit card. She did not have one in her name. For the home loan they were forced to rely only on Stu’s income and credit score. Needless to say, they were discouraged in what they were able to purchase on only Stu’s income and credit score.

They thought they had made the right financial decisions 8 years earlier. They felt differently later in life.

Talk with a Professional

As part of our planning to go full-time we talked with the branch manager at our credit union, the branch manager at our commercial bank, our accountant and our financial planner. We are grateful for all of their perspectives.

As we talked with these professionals, we kept in mind three things:

• None of these professionals will be living our life with us.
• There are no consequences to any of them if we make a financial “mistake”.
• Their advice is coming from a somewhat biased point of view. They may have had “a dog in the fight”, for example, the bank/credit union that held the note on the RV, the financial planner that was fixated on us having money in retirement, or the accountant that managed our stock portfolio.

The best advice we can give you is to listen to everyone, and listen to no one. Gather as much information as you can, from as many people (personal and professional) that you can and then make the decision that is right for you. Being a credit ghost may even be the best decision for you!

Whatever your decision, just make sure it is an informed one.

Take-away Point

There can be great and devastating results from all of our financial decisions. What is right financially for one person may not be right for another person. Times change and what we have always thought was financially the best thing to do, for example, paying off a small personal loan, or paying off all of your bills before going full-timing, may not ultimately be the best decision.

By the way, the information in this blog could apply to anyone who is planning a big financial decision, not just people selling their houses and becoming full-timers.

Your partners in travel,
Kathryn, Dave and Lucky
RVing Nomads
It’s a lifestyle!

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