What to do if you have no credit history

A credit score is a three-digit number that lenders use to rate your financial condition. Some may deliberately stay off the credit rating radar and pay cash for everything. But most of us want to have a good credit score that will allow us to do what we want to do at an affordable price.

Of course, “cash is everything”, but not when it comes to applying and getting a loan when you need it. Credit reports also come into play when it comes to renting a house, a promotion at work, or even the rate you pay for auto insurance.

So, for all of you who either have no credit or a very limited credit history, here is what you can do to make a difference and open doors that are currently closed to you.

What does it mean to have no credit history?

If you do not have a credit score, this means that there is no number associated with your credit profile.

No credit vs bad credit history

In terms of lending, no credit is the same as bad credit. This means that if you don’t have credit and apply, you may very well be denied.

If your current score is low, it’s probably because you made some mistakes that caused it to go down.

Your credit score will suffer from mistakes such as late or missed payments and overusing credit cards. Negative entries remain on your credit report for seven years, with the exception of Chapter 7 bankruptcy, which remains there for 10 years.

While you can certainly recover from these activities by paying your bills on time as agreed and reducing your credit balance, it will take time. On the plus side, positive accounts will stay on your credit reports for 10 years after you close them. This will help increase your score for years to come.

For those of you without credit, you don’t have a negative history to overcome. All your new, positive information will show up undiluted, and your score will rise faster than someone digging a negative credit hole.

Why don’t you have a credit history

There are several reasons why you might not have a credit score:

• Perhaps you are young and have had no reason to try to access credit before.
• You could be an immigrant who either didn’t have a home loan or whose overseas credit case didn’t arrive with you.
• You may have avoided a loan because, in your experience, the system is against you.
• You may be a member of a minority group that can only access a high interest rate loan, such as a payday loan.
• Perhaps you just like to pay with cash, while mere mortals use plastic.

None of these are bad, but they will prevent you from having a credit score and leading a stable financial life in the United States.

Credit scores are primarily derived from the information on your credit reports. These reports receive information from lenders who “report” five key aspects of your credit experience to three major credit bureaus. These aspects include:

• Your payment history
• How much available credit do you use
• What types of loans do you have
• How long have you been using loan products?
• How long ago did you apply for a new loan

Tip: According to a May 2021 Wall Street Journal report, JP Morgan Chase, Wells Fargo, US Bancorp and other banks are launching a pilot program to provide loans to financially responsible consumers without a credit rating. Banks will consider checking data and savings accounts of other financial institutions to assess creditworthiness, the report said.

If you have no credit, is your score zero?

In short, there is no “zero” credit score. Credit scores range from 300 to 850 in both FICO and VantageScore. If you are just starting or starting over, you should know that 300 is not a starting point. It’s just the lowest point in the range.

Using the following VantageScore scale, you can evaluate your place in the credit hierarchy:

What to do if you don’t have a loan?

There are now additional ways to earn points, including:

Sign up for a credit card

Traditionally, when it comes to credit cards, retail and gas cards tend to be pretty easy to get and can be a good starting point for those new to lending.

While having credit accounts in your name is good, there are other steps you can take. One proven method is to add a parent or other person to the account as an authorized user. Adding as an authorized user means that while you are not responsible for account payments, you still receive credit for positive payments that the primary cardholder makes.

You may also consider getting a secured credit card. These cards are secured by collateral from the lender. If you don’t make your payments on time, the lender may take the collateral. This, of course, would defeat the purpose of creating credit. If you decide to go this route, make sure the issuer reports your card activity to three credit bureaus.

Apply for a savings book loan

In the same vein, a savings book loan. This is a loan that, again, is backed by your own funds (and you need to make sure your activity is reported to the credit bureaus).

One of the advantages of this method is that it gives you the opportunity to increase your credit balance. The credit rating factor is not as important as the payment history and credit usage in the rating matrix, but it does matter. A savings book loan is considered an installment loan, whereas credit cards are a “revolving” loan.

Add positive data to your credit report

There are also various products on the market that will help you improve your score by taking into account non-traditional information called consumer-provided data. This means you can be informed about your positive financial habits on your credit reports.

Experian Boost allows you to receive timely mobile phone and utility payments as part of your Experian credit report. FICO also released UltraFICO, which allows you to take into account bank data. And if you want your rental payments to be reported, check out Experian RentBureau.

While these things will only affect the FICO score you get through Experian, they are a good start for those looking to get a loan.

bottom line

Regardless of how you start building your credit, be sure to do your best right from the start. This means you pay your bills on time, every time, and keep track of how much of your available credit you get in one billing cycle.

Only apply for the loan you need and you are sure you can qualify for. Use our CardMatch™ tool to find out in advance if you qualify. Follow these steps and you will get a result that you can be proud of – just remember to always follow it.

Steve Bucci has been helping people decipher and solve personal finance issues for over 20 years. He is the author of The Dummies’ Credit Management Kit, The Dummies’ Credit Repair Kit, Barnes and Noble Debt Management, co-author of The Dummies’ All-In-One Money Management Kit, and The Credit Repair Kit. For Dummies (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt cases. He was a speaker at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at the University of Cambridge in the UK.