If you haven’t used credit for a long time – or maybe never – you might be wondering if you even have a credit score. The answer is quite important, especially if you are planning to borrow money in the near future.
It’s possible not to have a credit score, and that’s not a good situation. The good news is, you can fix it.
Do I have a credit score?
A credit score is a digital 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 analysis companies that calculate your credit scores: Fair Isaac Corp., commonly known as FICO, and VantageScore. Both assign credit scores, which may be similar but are not calculated in the same way.
FICO and VantageScore have different minimum requirements to generate a score. According to Shawn Lane, co-founder and COO of credit repair company Financial Renovation Solutions Inc., FICO needs:
- A business line, also known as a credit account, which has made a report for the past six months.
- A commercial line of more than six months.
- No indication that the account holder is deceased. In other words, the credit report should show you alive.
Lane notes that the first two requirements can be met by the same business line. If you don’t meet these requirements, you probably don’t have a credit score.
During this time, VantageScore can generate a score after a month of credit activity.
What it means to have no credit score
Having no credit score is not the same as having bad credit. Bad credit is the result of poor credit management and getting negative ratings on your credit reports. So if you have a history of missing payments, defaults, bankruptcy, liens, or any other behavior that results in bad credit, your credit score will reflect that.
No credit, on the other hand, means that you have not had any recent credit activity that the credit bureaus can use to generate income. credit rating.
No one actually has a zero credit score, even if they have a bad credit history. The FICO scoring model, for example, ranges between 300 and 850. It is rare for someone to score below 470. According to Experian, 99% of consumers have FICO scores above 470. But if you don’t. no credit history, you don’t score at all.
There are several reasons why you might not get a score. You might be young and new to using credit, so you haven’t had enough time to build up a credit score yet. You might have used credit in the past, but not recently, which means there isn’t enough recent information for a score to be generated.
Even if you’ve used credit in the past few months, you can still find yourself scoreless. This is because some lenders may only report your account activity to one of the credit bureaus or not report it at all. In fact, lenders are not required to report to any of them, although most do.
Why are your credit history and score important?
“Lenders see your credit score as a symbol of your financial responsibility and use it not only to determine whether or not they will approve you for financing, but also at what interest rate,” explains Brenton D. Harrison, financial advisor at Henderson Financial Group. Inc.
People with the highest credit scores have proof that they are trustworthy borrowers, so lenders are ready to give them the lowest interest rates on mortgages, car loans, cards credit and other types of credit. But if you don’t have a credit score, lenders have a hard time determining your risk.
“Not having a credit score is like having a bad credit score because you can’t prove to the lender that you’ve already paid off your debts,” Harrison adds. “It means paying higher interest at best, and at worst being refused altogether.”
Lane adds that not having a credit score can affect other areas of your life as well. For example, you may have to pay more auto insurance premiums and deposit security deposits for cell phones and utilities.
What if you don’t have credit?
If you don’t have a credit score, don’t worry – there are some steps you can take to create one. Here are some of the best ways to build a credit history and increase your score.
Make sure your activity is reported. Check that all of your credit card issuers and lenders are reporting to the three major credit bureaus – Experian, Equifax and TransUnion – to make sure your credit activity is taken into account.
Ask someone to add you as an authorized user. One of the fastest ways to generate a credit score, according to Lane, is to be added as an authorized user to a family member’s or friend’s credit card that has been open for. more than six months. “As an authorized user, this account will be recorded in your credit report as if it were your own,” Lane said.
Authorized users are allowed to debit card transactions, but are not legally responsible for paying the bill. Even so, the authorized user does not have to spend anything to reap the benefits of the credit score; the primary cardholder can add you as an authorized user and never give you the actual card information. Just make sure the other cardholder is able to pay their monthly bill on time, as any negative card activity will be reported as yours as well.
Open a secure card. If you’re trying to build credit, consider getting a secure credit card designed for consumers with little or no credit. Secure cards require you to “secure” a line of credit with a small deposit.
“The credit limit is usually the amount of your deposit, so you don’t have to spend money you don’t have,” says Harrison. “And with payment history being the most important component of your FICO score, at 35%, on-time payments will help build positive credit quickly.”
After approximately six to 12 months of responsible use, you should have a positive credit history and be able to upgrade to unsecured credit card.
Take out a manufacturer’s loan. Another option is to take a credit builder loan. These loans, which are typically offered by credit unions but can also be found in banks and online, require the borrower to provide a deposit held in an interest-bearing bank account.
Usually this amount is less than $ 1,000. The borrower then repays the loan over about 12 months, sometimes charging interest on the down payment. When the term of the loan is over, the lender repays the borrower’s money, plus applicable interest. Although home builder loans do not require approval of good credit, borrowers must prove that they have sufficient income to pay it off.
Register for rent payments to be reported. Another way to build a credit score without going into debt is to report your monthly rent payments to credit bureaus. Usually rental activity is not reported to offices 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 may need to approve the transactions.
Finance an in-store purchase. Finally, if you need to make a large purchase, consider taking advantage of the store finance option, if available. Sometimes retailers will allow you to purchase items on credit without interest during an introductory period. Since this counts as a type of loan, paying it off on time – ideally before the 0% interest period ends – can help build a credit history. However, before accepting this type of offer, read the fine print to make sure there are no hidden charges or unfavorable terms.