Havingno credit score typically means one of two things – you don’t have enough of a credithistory for reporting agencies to calculate a score – or you haven’t had enoughrecent activity. The credit industry refers to this group as “creditinvisible.”
Aswe’ll see, having no credit score is not the same as having bad credit. It alsomight be easier to start building your credit score than it is to fix badcredit.
What Is a Credit Score?
Acredit score is a number that represents your credit history as reported tocredit agencies. Your score acts as a grade of your creditworthiness as aborrower. Lenders use the score to determine the likelihood that you will repaythem on time if they grant you a credit card or loan.
Whenyou do get a credit score, compare it to the scoring models of VantageScore andFICO to see how your score rates. These are the two most widely used scoringmodels for creditors, lenders and other parties.
VantageScore Scale
VantageScore3.0 is the most widely used VantageScore model. The score ratings range from300 to 850, which breaks down as follows:
- Excellent Credit: 810-850
- Great Credit: 750-809
- Good Credit: 670-749
- Fair Credit: 560-669
- Poor Credit: 500-559
- Very Poor Credit: 300-499
FICO Scale
FICO8 is FICO’s most commonly used scoring model. The score ratings also range from300 to 850, but the breakdown is slightly different:
- Excellent: 800 -850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
Why Don’t I Have a Credit Score?
Whenyou don’t have a credit score, it most likely means that you may not have acredit history with the three main credit reporting agencies (TransUnion®,Equifax® and Experian®). It may also mean your paymenthistory doesn’t contain enough recent information to determine a score. Mostcredit scoring models want to see activity within the past two years.
Hereare some common reasons why you may not have a credit score:
- You may not yet have a credithistory.
- You may not have borrowedmoney in the last seven years.
- It could be six months orlonger since you last used credit.
- Your credit history might benew and with little credit activity or payment history.
Sometimespeople refer to not having a credit score as having a “zero” credit score.While some credit reporting bureaus will show “0” on your report if you don’thave a score yet, it’s impossible to have a zero if you have a credit record.Credit scores typically don’t go any lower than 300. So you either have a scoreof 300 or above, or you don’t yet have a score.
When Will I Receive My Credit Score?
Whenopening your first credit account, it may take between three to six months tocalculate your credit score.
Differentcredit scoring companies use different scoring formulas to determine your score,which means the time frame to receive your score may vary. Another factor ishow quickly your creditor reports your payment information to the creditbureaus.
Mostcompanies report payments at the end of the billing cycle, so you may want towait a few months before checking for your credit score. If you don’t see yournew account on your credit report after a few months, call your creditor toverify that they report to the credit bureaus. Also, not all creditors reportto all credit bureaus, so be sure to check your credit reports from each of thethree bureaus: TransUnion, Equifax and Experian.
How to Get Credit When You Don’t Have a Score Yet
Althoughcredit may be more difficult to secure without a credit score, it is possible.Here are the ways that “credit-invisible” consumers may get credit:
Get a Secured Credit Card
Asits name suggests, a secured credit card is secured with a cash deposit. Theamount you deposit is usually the credit limit.
Apply for a SecuredCredit-Builder Loan
Acredit-builder loan is a loan that holds the amount borrowed while you makepayments. You receive the loan funds once the final payment is made and theloan is paid in full. Not only do you build a positive payment history, but youend up with enough savings for a small emergency fund when the loan term iscomplete.
Use a Co-Signer orBecome an Authorized User
Aska close friend or family member to co-sign with you on a credit application fora loan or unsecured credit card. Make sure that both the co-signer and youunderstand that the co-signer must pay the full amount if you don’t pay.
Alternatively,someone close to you may add you as an authorized user on their credit card. Thatway, the card’s payment history may be added to your credit files. As long asthe primary card user has a good payment history, you might benefit from beingan authorized user.
Apply for a StoreCredit Card
Youmay find it easier to obtain a retail or gas card, as they often haverequirements that differ from conventional credit card companies. You may havea more positive impact on your report through small purchases on the card thatyou pay off in full each month.
Make Student LoanPayments On Time
If you have a student loan, ensure you are making payments on time andalso try to pay more than the minimum due amount. By doing so, you’ll showcreditors that you are creditworthy while paying off your loans faster.
Finance a LargerPurchase
Youmay want to consider financing a bigger purchase with a department store, whichis often easier to obtain than a traditional credit card or bank loan. Thedepartment store should report your payments to the credit agencies. By makingyour payments on time, every time, you’ll get a credit history.
Is Having No Score the Same as Bad Credit?
Restassured that if you don’t have a credit score, it doesn’t mean you have badcredit. The reasons for not having a credit score and for having bad credit arequite different.
Ifyou have bad credit, it is usually the result of one or more of the following:
- You may have late or partial payments from the past. Your payment history makes up 35% of your credit score. Consistent late payments may lead to a poor credit score.
- Your credit file may include a charge off or loan default. When a creditor loses faith in a customer’s ability to pay – due to a customer not paying for several months, they “charge off” the account or put the loan into default. A charge off is one of the most damaging marks on a credit report. Though the insurer is charging off the account, the consumer still owes the debt.
- One or more of your accounts may have been turned over to a collection agency. Creditors may enlist a third-party debt collection company to secure payment from you.
- Your credit card accounts have a high credit utilization ratio. Your credit utilization ratio is how much you owe in revolving credit divided by your credit limit. In other words, if you have a total credit limit of $10,000 and you owe $6,000 in charges and interest, 60% is your credit utilization ratio.
Most VantageScore experts agree that a utilization ratio of 30% or less is a good goal. Those with the highest credit scores tend to a credit utilization of 10% or less.
- You have a bankruptcy on your credit report. Bankruptcy is a serious measure for those who are struggling to pay their outstanding debt and it may negatively affect a debtor’s credit for at seven to 10 years.
- Your credit file includes a home foreclosure. A mortgage lender may foreclose on your home if you get too far behind on your payments. Having a foreclosure on your credit report may make it harder to secure a mortgage loan in the future.
Insome cases, lenders may decide that someone with no credit has the same risklevel as someone with bad credit – and decline them credit. The good news is, thereare lenders that offer products specifically geared towards those with nocredit.
The Bottom Line
You may not have a credit score if you have little to no credit activity on your credit report. This is true if you haven’t opened any credit lines yet, or if it’s been more than seven years since you borrowed money, or six months since you used credit.
