You probably feel good if you've avoided debt so far – no loans or credit card bills pull you down every month. Good for you.
If you check your credit score … you get nothing.
Here's why you don't have a credit, what no credit score means for your financial future, and what steps you need to take to start from scratch.
What does it mean not to have a credit score?
If you don't have a credit score, you have no activity that the credit bureaus can use to calculate a score. This often means that you have no credit at all – you have never applied for a credit card or borrowed money.
But it could also mean that you don't have one recently History. If you have taken out credit or credit cards in the past but have closed your accounts and have had no activity in the past seven to ten years, you may not have a credit score, but you may have a credit history.
Unfortunately, "there is no precise schedule to be unscorable," says Beverly Harzog, U.S. Consumer Finance Analyst News & World Report, "because everyone has a unique credit record and many factors are taken into account."
What determines your credit score
Credit bureaus – you may know the main ones, Experian, TransUnion and Equifax – need activity to calculate a credit score, i.e. H. Your VantageScore or FICO score. Companies will let you know, for example, when you apply for a loan, take out a loan, steal your credit card, and pay (or miss) a debt. This information determines your score.
No activity? No score.
About one in ten American adults is "Credit invisible, ”The Office for Financial Consumer Protection reported in 2016,
If you have no credit, your loan options are limited. Lenders and credit card companies use your score to determine how much you can borrow and at what interest rate. A low or no score means that these are usually unfavorable.
Difference between no credit and bad credit
Good news: no credit is different from bad credit. Both tell the credit bureau algorithms that you haven't proven yourself to be a responsible borrower. However, "no credit" indicates that you have not proven to be a responsible borrower irresponsible Neither do borrowers.
If you try to get your credit score or report and have no credit, nothing will appear. Poor credit shows up in damaging activity and bad credit, which is usually below 580 (although your credit options remain fairly limited until you reach at least 620).
How to build credit if you don't have a credit history
It takes a little time to create a credit history, but a strategy can get you there relatively quickly and efficiently.
Scott Bates, a content marketing expert and founder of Money and bills Blog, built up his credit from scratch, starting with a credit card at the age of 19. At 21, he bought his first home in the San Francisco Bay Area.
"It felt like they wanted to take a risk with me," says Bates when he received this first approval, which prepared him for early home ownership and financial success.
Here are some tips from Bates and other loan experts Build credit from scratch,
1. Become an authorized user
You don't need a credit card to create a credit score, but this is one of the safest ways to do it. You can get involved by asking someone – your parents or other family members are good options – to add you as one authorized user on their map.
In most cases, activity on this credit card will be recorded in the credit history and that of your credit card, regardless of how much you actually swipe across the card. You can benefit from their responsible use of credit. Your irresponsible activity can also affect your creditworthiness. So choose wisely.
2. Open a secured credit card or student credit card
There are both secure credit cards and student credit cards that you can use to build credit by using credit cards carefully. However, each card is useful for a different consumer.
Secured credit cards require a deposit and usually start with a minimum of $ 200, which is usually the amount of your deposit.
Student credit cards are usually unsecured with a low credit limit and may only require that you be a college student. These sometimes have stricter credit and income requirements than secured cards.
3. Take out a credit builder loan
A loan builder loan like those from Self Lender, only exists to put you on the credit card. It is usually so small that you would not use the funds for a purchase like you would with an actual loan.
The other difference is that you don't get the money until you've made all the payments – like G. Brian Davis, Director of Education at Spark Rental indicates that it is not really a "loan".
"Instead of borrowing money from a lender, choose a monthly payment schedule with the" lender "and make the payments as promised," says Davis. “The lender puts your payments aside in your personal escrow account and you get your money back at the end of the loan term – most of it anyway. they keep a small fee for their trouble.
"But the result is that they report your monthly payments to the credit bureaus as if it were an installment loan. When the loan term expires and you get your money back, they report the loan as" fully paid. "
4. Open a business credit card
The first step Bates took to build a positive credit history was to open a credit card at Macy's. It only had a limit of $ 100, but it was what he needed to get the ball rolling.
"Using the card and paying it back every month has increased my credit rating," Bates told The Penny Hoarder.
Save cards tend to have more relaxed requirementsSo you have a better chance than being approved with a conventional card. They also tend to have higher interest rates and fees. So only spend what you can repay monthly to avoid accumulating debt.
5. Financing a big ticket item
Instead of applying for a loan or loan directly from a bank, you can often finance large purchases such as furniture or household appliances through the store. These are bonafide forms of credit and can appear on yours credit report, To be sure, ask the lender where the activity is being reported.
As with business loans, retailer financing can be associated with a low barrier, but also with high costs. The smartest way to use this to build up your loan is to save the money you buy the item and then pay it off with these savings before the typical 0% interest period ends.
6. Use a co-signer for a credit card or loan
A co-signer with a good credit rating can help you qualify for your first credit card or loan. By signing, they assume the same responsibility for the debt, so the lender doesn't have to rely solely on your (non-existent) history.
The debts and activities on the account affect a co-signer's credit report as well as yours. So keep an eye on payments for both parties.
7. Report payments for rent and utilities
Credit bureaus do not automatically track rent payments and benefits, which is disappointing as they are often a good indicator of your financial responsibility at a young age!
However, some clever companies have found this out and are using information from their rental and utility accounts to report back to the offices.
NerdWallet lists 10 rental registration services: Esusu and Zingo, which are free; Plus paid services: rent a reporter, rent a karma, RentTrack, Rock the Score, ClearNow, pay rent, eRentPayment and CreditMyRent.
8. Set up overdraft protection at your bank
During my studies, my university-related credit union set up overdraft protection as a credit line with my new checking account. Boy, is that a godsend? It is also great for building loans if you are always up to date.
Unlike most checking accounts, where you keep your balance below $ 0 and pay a billion dollars in fees, this line of credit covers your balance to the limit, usually with 0% interest, and you pay it back with deposits into your account.
Functionally, it is a free overdraft. However, since it is actually a line of credit, this can contribute to your credit history. Ask your facility if this type of protection is available and if management is reported to credit bureaus.
9. Use your credit responsibly
Once you get your first credit, I no longer have to tell you that you have to be careful if you borrow too much and make your payments on time. But I will point out some things that new borrowers have pointed out often wrong about credit:
Do not use all of your credit. Your loan purpose – The percentage of your credit limit that you use is enormously for your credit score. Keep it below 30% for best results.
Don't apply for or open a lot of credit cards at the same time. If you have multiple cards, this can be beneficial for your loan usage. However, if you open multiple accounts in a short period of time, your credit report will be marked with a red flag.
Do not carry scales! Keep your credit on your credit card from month to month Not help your score; It only increases your debt with interest.
"As soon as you have a track record with your secured credit card," it says Victor Fong, a CPA and licensed bankruptcy administrator in Toronto, Canada, "get deals from credit card and credit companies." Compare the deals to find the right ones to increase your credit limit. However, be careful not to manage more than you can take on.
10. Monitor your credit report
Keep an eye on your credit report as you build up loans. Make sure your activity is reported (in some cases, it can take up to three months to appear). Checking your credit report Once a month or so also helps you take care identity theft This could affect your credit rating.
11. Pay attention to your student loan debt
When you take out student loans, you also get a credit history. The main advantage of most federal loans is that they don't give you loans based on your credit rating. Everyone gets the same interest rate, and the loan amounts are based on need.
The disadvantage of student loans, including federal loans, is that they are often given out so much debt. You'd better avoid them when you don't need them and build up credit in other ways. If you use student loans to pay for school, responsible debt handling can increase your balance when it is due.
Can you apply for a new loan without a credit score?
You can apply for credit cards, loans, and no-credit financing, but your options for doing good business are limited.
It is best to start early with some of the steps to build up credit described above.
If you don't live in a magical rainbow country where you always make the most perfect financial decisions at the most perfect time while driving to the calorie-free ice cream parlor with a unicorn, you may not have this luxury.
You may need a mortgage or credit card this year to cover your payslips. You have options.
Get a credit card with no credit score is probably the easier task. You can start with a secured card or become an authorized user, and your credit rating will likely get a quick boost. You will receive an increase in the credit limit within 12 months of responsible use with most secured cards.
To get a mortgage without a credit score, Examine government programs to support low-income, low-credit borrowers or first-time homebuyers, including FHA loans and government first-time homebuilder programs. You can also apply with a creditworthy co-signer.
If you have a few months to prepare to apply for your mortgage, Davis from SparkRental recommends taking out a secured credit card and loan to get activity on your account.
"It won't be long before a credit history is created with both people working at the same time," he says, "and buyers can qualify for a mortgage themselves within 12 months of opening these two accounts."
Dana Sitar (@danasitar) has been writing and editing on personal finance, careers and digital media since 2011.
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