If you haven’t used credit in a long time – or maybe ever – you might question whether you even have a credit score. The answer is pretty important, especially if you plan to borrow money in the near future.
It is possible to have no credit score, and it’s not a great situation to be in. The good news is you can fix it.
Do I Have a Credit Score?
A credit score is a numerical representation of your credit history, so if you don’t have a credit history, you might not have a credit score.
There are two major credit analytics companies that calculate your credit scores: Fair Isaac Corp., commonly known as FICO, and VantageScore. Both assign credit scores, which may be similar but aren’t calculated identically.
FICO and VantageScore have different minimum requirements for generating a score. According to Shawn Lane, co-founder and chief operating officer of credit repair company Financial Renovation Solutions Inc., FICO needs:
- One tradeline, also known as a credit account, that has reported in the past six months.
- One tradeline older than six months.
- No indication that the account holder is deceased. In other words, the credit report must show you as alive.
Lane notes the first two requirements can be satisfied by the same tradeline. If you don’t meet these requirements, you likely don’t have a credit score.
Meanwhile, VantageScore can generate a score after one month of credit activity.
What It Means to Have No Credit Score
Having no credit score isn’t the same as having bad credit. Bad credit is the result of mishandling credit and earning negative marks on your credit reports. So if you have a history of missing payments, defaulting on loans, bankruptcy, liens or any other behaviors that lead to poor credit, your credit score will reflect it.
No credit, on the other hand, means you haven’t had any recent credit activity that the credit bureaus can use to generate a credit score.
No one actually has a credit score of zero, even if they have a troubled history with credit. The FICO scoring model, for instance, ranges between 300 and 850. It’s rare for anyone to have a score below 470. According to Experian, 99% of consumers have FICO scores higher than 470. But if you have no credit history, you don’t have a score at all.
There are a few reasons why you might not have a score. You could be young and new to using credit, so you haven’t yet had enough time to build up a credit score. You could have used credit in the past but haven’t recently, which means there isn’t enough recent information for a score to be generated.
Even if you have been using credit within the past few months, you can still end up without a score. That’s because some lenders might only report your account activity to one of the credit bureaus or not report it at all. In fact, lenders aren’t required to report to any of them, though most do.
Why Do Your Credit History and Score Matter?
“Lenders see your credit score as a symbol of your financial responsibility and use it to not only determine whether or not they’ll approve you for financing but also at what interest rate,” says Brenton D. Harrison, financial advisor with Henderson Financial Group Inc.
People with the highest credit scores have proof they’re trustworthy borrowers, so lenders are willing to give them the lowest interest rates on mortgages, auto loans, credit cards and other types of credit. But if you don’t have a credit score, lenders have a hard time determining your risk.
“Having no credit score is the equivalent of having a poor credit score because you can’t prove to the lender you have a history of repaying your debts,” Harrison adds. “That means paying higher interest at best, and at worst, being declined altogether.”
Lane adds that having no credit score can also affect other areas of your life. For example, you might have to pay higher auto insurance premiums and post security deposits for cellphones and utilities.
What Should You Do if You Have No Credit?
If you don’t have a credit score, don’t worry: There are steps you can take to build one. Here are some of the best ways to establish a credit history and grow your score.
Be sure your activity is reported. Double-check that all your credit card issuers and lenders report to the three major credit bureaus – Experian, Equifax and TransUnion – to be sure your credit activity is counted.
Have someone add you as an authorized user. One of the quickest ways to generate a credit score, according to Lane, is to be added as an authorized user on a family member’s or a friend’s credit card that has been open for more than six months. “As an authorized user, that account will report to your credit file like it is yours,” Lane says.
Authorized users are allowed to charge transactions to the card but aren’t legally responsible for paying the bill. Even so, the authorized user doesn’t have to spend anything to reap the credit score benefits; the primary cardholder can add you as an authorized user and never give you the actual card information. Just be sure the other cardholder is able to pay his or her monthly bill on time because negative activity on the card will be reported as yours, too.
Open a secured card. If you’re trying to establish credit, consider signing up for a secured credit card, which is designed for consumers with poor or no credit. Secured cards require you to “secure” a line of credit upfront with a small deposit.
“The credit limit is typically the amount of your deposit, which helps prevent you from spending money you don’t have,” Harrison says. “And with payment history being the largest component of your FICO score, at 35%, on-time payments will help quickly establish positive credit.”
After about six to 12 months of responsible use, you should have a positive credit history and be able to upgrade to an unsecured credit card.
Take out a credit-builder loan. Another option is taking out a credit-builder loan. These loans, which are typically offered by credit unions but also can be found at banks and online, require the borrower to supply a deposit that’s held in an interest-bearing bank account.
Usually, that amount is less than $1,000. The borrower then pays back the loan over about 12 months, sometimes while earning interest on the deposit. When the loan term is up, the lender returns the borrower’s money, plus applicable interest. Though credit-builder loans don’t require good credit to be approved, borrowers need to show they have sufficient income to pay it back.
Sign up to have rent payments reported. Another way to build a credit score without taking on debt is to have your monthly rent payments reported to the credit bureaus. Usually, rent activity is not reported to the bureaus or included in your credit score calculation, but there are services, such as Rental Kharma or RentTrack, that will report rent payments on your behalf. Keep in mind that these services require a small fee, and your landlord might need to approve the transactions.
Finance an in-store purchase. Finally, if you need to make a big-ticket purchase, consider taking advantage of the store’s financing option, if it exists. Sometimes, retailers will allow you to purchase items on credit with no interest for an introductory period. Since this counts as a type of loan, paying it off on time – ideally, before the 0% interest period is up – can help establish a credit history. However, before accepting this type of offer, read the fine print to be sure there aren’t any hidden fees or unfavorable terms.
Free credit repair consultation for people in credit distress – Press Release
Give yourself some credit (reports)
By EMILY WU
Attorney, Federal Trade Commission
One important back-to-basics step you can take this Financial Literacy Month (or anytime) is checking your credit report.
Your credit report has a summary of your credit history. For example, if you’ve been evicted and a landlord turns uncollected rent over to a collection agency, that might be on your credit report. Information in your credit report affects your credit score. That’s important because businesses — like insurance and phone companies — use your credit score to decide whether to give you a policy or service, and what rate to offer. And potential employers and landlords also might check your credit.
So you want to know that the information on your report is accurate. And if it’s wrong, you want to make sure someone didn’t steal your identity.
Here’s the plan:
●Order your free credit report. Go to AnnualCreditReport.com or call 877-322-8228. Until the end of the pandemic, everyone in the U.S. can get a free credit report each week from all three national credit bureaus (Equifax, Experian, and TransUnion).
●Read the reports carefully. Do you recognize the accounts? Do they list credit applications? Did you apply for credit at those places?
●Spot a credit repair scam. If a credit repair company asks for money up front, or tells you not to contact the credit bureaus yourself, that’s probably a scammer.
Look, it’s been a tough time, and it’s hard to get back on track. But you can take steps to rebuild your credit. Only time and a plan to pay off debt will improve your credit, but with free credit reports available every week, it’s a good time to take a small step towards recovery.
. . .
The above information is from the Federal Trade Commission Consumer Information blog.
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