If you have a credit card, you probably know a little about the importance of having a good credit score. In fact, you may have heard of the no credit score scenario too. If you are new to the topic, however, you might be wondering what that means. Does it mean your score is zero or you do not have a score?
What does it mean to have no credit score?
To dispense your thoughts,a credit score cannot be zero. This is because the FICO scoring model has a range of 300 to 850. Having no credit score, therefore, means that you do not have entries that the credit bureau can use to calculate your credit score.
Why you miss a credit score
- You are new to using credit, which means there is no data available to determine your credit score.
This could happen to you if you are young or fresh from college, and you have not applied for any credit.
- You have not used credit recently, hence no enough information to generate a score
This may be the case when you have not applied for credit consistently in the recent past.
- When you use credit, lenders do not report your accounts activity to any of the credit reporting bureaus
Unfortunately, there is no law that dictates that lenders must report to the credit bureaus. Even though most lenders report, a few of them will not report your credit activity. This means your credit information will not be evaluated.
Does having no credit score translate to bad credit
Having no credit score does not necessarily mean that you have a bad credit. However, without a credit score, you cannot prove to a lender that you are responsible nor can it convince them that you can repay your debts fully and on time. It is accurate to say that consumers with bad credit are proven risky while those with no credit are non-proven risky. This is because lenders will always have a hard time deciding whether you will repay their debts on time.
How to build a credit score
1) Request someone to add you as one of the authorized users of a card
This is among the fastest ways of building your credit ratings. When a friend or family adds you as one of their card’s authorized users, the account reports to your credit file as if it is one of your accounts.
As an authorized user, you can charge transactions to this card although you are not responsible according to the law to pay bills or any incurred debt. In fact, you do not have to access the actual card information or spend anything to benefit from the credit scores.
Note: any damaging reputation on the card will also reflect on your credit report. For this reason, choose people who pay their credit and monthly bills on time.
2) Open a secured credit card
A secured card is a special type of credit card designed for people with no credit scores or those with poor credit scores. It is a better way of creating verifiable credit history if you do not want to be an authorized user. A secured card asks for a small deposit in order to secure your credit.
Since the credit limit is equal to the amount you deposit, a secured card ensures that you do not spend more than you pay. With a secured credit, your credit history is monitored and updated after 12 months.
Responsible use and repayment of credit on time will then allow you to move from the secured card to an unsecured card.
- You do not have to pay an annual fee
- There is no guarantee that you will be approved
- You have to ensure that your lender reports to the credit bureau, otherwise it would be futile to open a secured card.
3) Ensure all your activities are reported
Ensure that all your lenders report your activities to the three credit report bureaus each time you request for credit. This way, you will be sure that each of your activities counts.
You can also sign up to have your landlords or property managers disclose your rent payments to the bureau every month. Note, however, that rent payments are not usually included in credit reports and score calculations. However, there are companies that provide such services at a fee.
Setting up an account to report consumers to the credit bureaus is procedural. Therefore, some companies might choose not to report.
4) Consider a credit builder loan
This is a loan offered by banks or credit unions. It requires you to provide a deposit, mostly less than $1000, which is deposited in an account and accrues interest. You will then pay the loan in 12 months and earn interest on the deposit. This kind of loan does not require a good credit score to be approved.
It is a good option when you cannot qualify for a traditional loan. The lender deposits the loan amount according to the specifications of the financial protection bureau.
5) Finance and instore purchase
This is where you buy products on credit from retail stores for a particular period. The introductory period is always on 0% interest. This counts as a loan and paying it on time will help you build up your credit history.
Note: always read the terms and conditions keenly before accepting these offers to ensure there are no hidden fees and payments.
Your credit score or ratings and history matter because they reveal your financial discipline. It determines whether lenders view you as a risk or as a dependable consumer. Building your credit history takes time and requires patience. For this reason, you do not have to wait until you need a loan to start building your creditworthiness.