One prevalent misunderstanding regarding credit is that a low credit score is the same as no credit history. It sounds right at first, but that’s not the case. People without a credit history are in a completely separate category from those with poor credit.
This article will explain what you should know about not having any credit, including how to raise your credit score and what your actual credit score is before opening your first account.
Not having a credit score is different from having a bad credit score.
A bad credit score means you have a history of missed payments, high credit utilization, or other negative marks on your credit report. A lack of credit history means you haven’t established any credit yet, so you don’t have a score.
The following information will help you establish credit from scratch if you don’t have any credit history:
What Does “No Credit History” Mean?
No credit history means you haven’t established any credit yet. This could be because you’ve never had a credit card, loan, or other line of credit. It could also be because you’ve never used these accounts or haven’t used them enough to generate a credit score.
Having no credit history isn’t necessarily a bad thing It just means you haven’t had the opportunity to build credit yet. However, it can make it difficult to get approved for loans or other forms of credit
How Does Credit History Affect Your Score?
Your credit score is a number that represents your creditworthiness. It’s based on your credit history, which includes information about your past borrowing and repayment behavior.
Lenders use your credit score to assess your risk as a borrower. Being approved for loans and other forms of credit at favorable terms is more likely if you have a higher credit score because you are less likely to default on a loan.
If you have no credit history, you won’t have a credit score. Because lenders will be unable to determine your risk, this may make it more difficult for you to be approved for loans or other credit.
6 Tips for Building Credit from Scratch
In the event that you lack a credit history, you can begin establishing credit in a few ways:
- Become an authorized user on a credit card. This means you’ll be added to someone else’s credit card account and will be able to use the card to make purchases. The activity on the account will be reported to the credit bureaus, which can help you build credit.
- Get a secured credit card. A secured credit card requires you to make a security deposit, which will be used as your credit limit. As you use the card and make payments on time, your credit score will improve.
- Consider a credit builder loan. A credit builder loan is a small loan that you repay over time. The payments are reported to the credit bureaus, which can help you build credit.
- Have your bill payments reported to the credit bureaus. Some companies offer services that report your utility and other bill payments to the credit bureaus. This can help you build credit without having to take out a loan or open a credit card.
- Pay your bills on time. This is the most important factor in your credit score. Make sure to pay all of your bills on time, every time.
- Keep your credit card balances low. Your credit utilization ratio, which is the amount of credit you’re using compared to your available credit, is also a factor in your credit score. Aim to keep your credit utilization ratio below 30%.
How Long Does It Take to Build Credit?
It can take several months or even years to build credit from scratch. The amount of time it takes will depend on how often you use credit and how well you manage your accounts.
Be patient and consistent with your efforts, and you’ll eventually build a good credit score. A good credit score can save you money on interest rates and insurance premiums, and it can make it easier to get approved for loans and other forms of credit.
Frequently Asked Questions
What is a good credit score?
A good credit score is generally considered to be a score of 670 or higher.
What is a bad credit score?
A credit score of 629 or lower is typically regarded as bad.
How can I check my credit score for free?
There are a number of websites and apps that offer free credit score checks. Some popular options include Credit Karma, Credit Sesame, and NerdWallet.
How can I improve my credit score?
There are a number of things you can do to improve your credit score, including paying your bills on time, keeping your credit card balances low, and becoming an authorized user on a credit card.
What is the difference between a credit score and a credit report?
A credit score is a number that represents your creditworthiness. A credit report is a detailed record of your credit history.
If You Have No Credit, What is Your Score?
If you have no credit, you have no score. That doesn’t mean your credit score is zero or even that you have a bad credit score. Without any credit history, you don’t fall into any credit range. You’re credit invisible.
To group those who have never made a mistake with those who have a low credit score as a result of filing for bankruptcy would be unfair.
Besides, even if someone purposefully damages their credit or themselves, it is impossible to have a credit score of zero. Most modern credit scoring methods bottom out at 350.
Make Payments On Time
Make your monthly payments on time if this is the one credit-building tip you take to heart and implement.
Staying on top of your debt payments is essential to building a good credit score. You can do everything else right, but if you miss your payments, you’re still going to lose points.
Payment history is worth 35% of your FICO Score, making it the most heavily weighted factor. It has the same weight on your score as the sum of your credit history, new credit activity, and credit mix.
When you miss a payment, most lenders will charge you a late fee, but they will wait at least 30 days to report it to the credit bureaus.
Still, don’t make a habit of flirting with that threshold. Making a mistake and paying late even once can have serious consequences, particularly if your credit file is already thin.
That said, don’t let the payment languish just because you missed the 30-day window. Letting it go longer will damage your credit further (i. e. , 60 days late is worse than 30 days).
To ensure that you never forget a payment, it’s a good idea to set up auto payments on your credit accounts. Keeping even a small emergency fund in place should help you avoid any potential overdraft fees.
Unfortunately, making timely payments is only effective if they’re also complete payments. For example, say you owe a minimum of $50 toward your installment loan on January 1st.
Lenders will record your payment as late or missed even if you always pay $35 instead of $35 on the scheduled date.
It will reduce your debt amount, but it won’t shield you from late fees or potential credit score damage.