Should You Be Worried About No Credit Score? – Councilor Forbes


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Your credit rating is an assessment of your creditworthiness and the likelihood that you will pay off your debt. Lenders use it when evaluating your financing, such as credit cards, mortgages, and other loans. But what if you don’t have a credit score? Does this mean that your finances are definitely ruined? Not enough.

Read on to find out what it means to have no credit score and how you can create one for the first time.

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What is a credit score?

A credit score is a three-digit numeric rating that the three credit bureaus — Experian, Equifax, and TransUnion — assign to a consumer. The numbers represent a person’s creditworthiness as a borrower. Additionally, lenders typically use an applicant’s score to determine the terms of a new credit account, such as the interest rate, term length, and any other additional charges such as set-up fees.

FICO and VantageScore are the two credit scoring models, with FICO being the more common. Both rating models range from 300 to 850. The higher the credit score, the more likely it is that the borrower will pay off their debt on time. A person with a low credit rating is more likely to default on a loan or make late payments.

What it means to have no credit score

When you don’t have a credit score, it means you’ve never opened a credit account, like a loan or credit card. Young adults often don’t have a credit score because they don’t have any credit in their name.

Unfortunately, having no credit is like a catch-22 situation. When you don’t have credit, chances are you won’t qualify for a loan or credit card. However, you cannot create a loan without opening a new credit account. We’ll walk you through the steps you can take to create credit for the first time.

Related: How to create credit at 18: 7 tips proven by experts

No credit vs. Bad credit

Having no credit is not the same as having bad credit. Bad credit refers to a score below a certain threshold – 580 or less. If you have bad credit, that means you’ve likely had multiple late payments, defaulted on a loan, or filed for bankruptcy at some point. In some cases, it may be easier to create a good credit score from scratch than to correct a bad credit score.

Related: How to improve your credit score

Why credit scores matter

Your credit score serves as a key not only for financial products like credit cards and loans, but also for rental properties as a tenant. Lenders and homeowners will usually do a credit check before considering your application. If you don’t have credit, they may require you to use a co-signer or co-borrower.

Some utility and cell phone companies also perform a credit check and may require a deposit if you don’t have a credit score. They can refund the deposit after a few months of one-off payments.

How to start building credit for the first time

Building credit is possible, although it may seem like a challenge at first. Here are some easy ways to create credit for the first time.

1. Use a secure credit card

A secured credit card is one of the easiest ways to get credit if you don’t have a credit score. Secured credit cards require a deposit that will act as a guarantee for the card company. The deposit will often be equal to the credit limit of the card. For example, a card with a deposit of $ 200 will have a credit limit of $ 200.

You can use a secured credit card at the same retailers where you would use a traditional credit card, such as online or physical retailers. After several months of on-time payments, some providers will switch you to a traditional, unsecured credit card.

There are two things to keep in mind when using a secure card. First, on-time payments are the biggest part of your credit score, so try to always pay on the due date. A late payment can lead to pitfalls in your credit score.

Second, keep your credit usage below 30%. Your credit usage is a percentage that represents the amount of credit you are using against your overall credit limit. For example, if your secure card has a limit of $ 500, you should never have a balance greater than $ 150. Be careful, however, it is very easy to accumulate a high balance because secured cards have low limits.

2. Take out a manufacturer’s loan

A constructor loan is a loan that you take out solely for the purpose of building up your credit. Instead of receiving a lump sum payment from your lender, you will make payments to the lender up to the agreed loan limit. After you make all the payments, you will get the money you paid back, minus a small fee. It helps increase your credit score by creating an on-time payment history.

How long does it take to build credit?

The exact time it takes to establish a credit score depends on the individual borrower. Typically, it will take at least six months as the first account must be at least six months old to match your FICO credit score.

During the process of establishing a credit score, be patient. Always strive to make your payments on time, keep your credit card usage rate below 30%, and check your credit score at least quarterly to assess any changes in your score.

Increase your FICO® score instantly with Experian Boost

Experian can help you increase your FICO® score based on paying bills like your phone, utilities, and popular streaming services. Results may vary. See the site for more details.


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