Why don’t I have a credit score? What happens if I don’t have a credit score? How do I get a credit score? These are all important questions.
A good credit score is essential in modern life.
Without credit, you can’t get a credit card, a mortgage, or a loan. You might not even be able to rent an apartment. It’s a frustrating situation to find yourself asking why don’t I have a credit score. And fixing it isn’t always straightforward.
You can’t get credit unless you have a history of credit. Yet you can’t build that history unless you’re able to obtain credit in the first place. Let’s start with why you don’t have credit first.
Why Don’t I Have A Credit Score?
There are several reasons why you wouldn’t have a credit score. Here are the 3 main reasons.
1. You Haven’t Used Any Credit
A credit score doesn’t appear until you’ve got a history of credit to base your score on. Maybe you entered the workforce right out of high school, never took out any student loans, and have always paid for everything in cash.
You could be in great financial shape, but if you’ve never borrowed and repaid money, there’s no way for credit reporting agencies to give you a score. So, you’ll need to start using credit to get a credit score.
It’s worth noting that you have to use credit within the United States to get a credit score American lenders will acknowledge. Credit history from outside the US is invalid, and vice versa.
2. You Haven’t Had Credit Long Enough
Even if you have a loan or opened a credit card account, if it hasn’t been open and active for at least three to six months, there hasn’t been enough time for you to build a score. If this is your situation, keep using your credit card or paying your loan on time. You will have a score soon.
3. You Haven’t Used Your Credit in a While
Maybe you paid off some credit card bills and then swore off those dangerously tempting plastic squares for good. You threw them in a drawer or cut them in half. But if you haven’t used any credit for more than two years, you won’t continue to have a credit score. The good news is that if your credit accounts are still open and you start using them again, you’ll have a credit score again soon.
Do I Need a Credit Score?
Is a credit score really that important? After all, if you’ve been smart with your money, always paid your bills with what you have, and built up a healthy nest egg—why shouldn’t someone want to loan you money?
The unavoidable fact is that credit scores are the way the financial world works. Half a century ago, you might have been able to walk into your local bank and talk to someone you knew—and walk out with a loan. Today, when moving to another state is as common as moving across town, communities are disconnected, and trust has to gauged another way. Credit scores are an integral part of the financial trust system.
Getting a Loan
If you need a loan for a car or a mortgage for a house, you won’t be able to get either without a credit score. It’s the only way the lender has to know whether you’re trustworthy and responsible enough to pay off your loan.
Getting a Job
Believe it or not, some employers won’t hire you unless you have a credit report. Background checks on job applicants are more common than ever, and often a credit report is part of that background check.
A credit report is different from a credit score, and a potential employer can’t see your credit score (or lack of one). But a credit report will still tell them how much credit you have, how much you’re using, and whether you pay your bills on time. If there’s nothing for them to see, some employers may consider you a gamble and choose someone else.
Getting Car Insurance
You can get car insurance without a credit score, but you’re going to pay more for it. Insurance companies are all about risk, and without a credit score, they don’t know how big a risk you might be. To minimize their own risk, they’ll want higher premiums out of you.
Getting a Rental Car
Most rental companies prefer a credit card over a debit card when you rent a vehicle. They will accept a debit card in most cases, but they’ll take a deposit—usually about $500—and run a credit check. If there’s no credit score to be seen, they won’t let you rent. It’s a Catch 22. If you have a credit card, rental companies won’t run the check. Yet if you have a credit card, you have a credit history and could pass the check. Why is it like this?
Rental car companies have to worry about replacing a car if it’s lost or damaged, and they want assurance that you have a history of responsible payment of your debts before they allow you to borrow a car.
Getting an Apartment
If you’re renting from a friend or family member, or if you’re sharing an apartment where someone else’s name is on the lease, you might never have had an issue with renting. As soon as you strike out on your own, however, having no credit score could make it difficult to find a place to live.
Landlords want to know that you’ll pay on time—and you guessed it—in their minds, there’s no better way to tell than by checking your history of paying your debts. If you don’t have a credit score, you’ll most likely be considered a “gamble,” and the landlord may choose to avoid the risk.
As more communities are implementing laws that make it difficult for landlords to evict tenants, even for failure to pay rent, landlords have an incentive to be extra picky about who they choose as a tenant.
How Can I Build My Credit?
If you’ve wondered why you don’t have a credit score and now realize you need one, the way forward can seem impossible. After all, most lenders and credit card companies won’t give you the time of day. First, consider a co-signer. But if you don’t have one, here are your other options.
Get a Secured Credit Card
You may not be eligible to get a regular credit card without credit, but you can get a secured card. To get a secured card, you put down a deposit via your bank account, and your deposit is the extent of your credit. The deposit is what makes these “secure,” and essentially, you’re borrowing from yourself.
The Capital One Platinum Mastercard is our top pick for people who don’t have credit and want to build it. It was my first credit card, and the one I recommend to my friends and family looking to build–or rebuild–credit.
These cards work just like regular credit cards, and as long as you pay off your debt each month, your deposit stays safe and intact. If you fail to pay off one month, that amount will be deducted from your deposit. If you keep paying off regularly, you’ll build a credit score and be able to apply for a regular credit card soon.
Get a Student Credit Card
If you’re still in college or grad school, it’s not too late. Banks and credit card agencies are anxious to get young adults on their rolls, so they’ll almost always extend a low-balance credit card to a student—even one without a credit score. A store credit card can work, too. With this option, you open accounts at stores you shop at (i.e., Kohls, Target, Walmart, etc).
Get a Joint Card
If you have a friend or relative you trust, and if they have good credit, get a joint credit account or become an authorized user of their card. Once you’ve kept this active for six months to a year, you can get your own card. At that point, it’s a good idea to cancel a joint card or have yourself removed as a user of someone else’s card. That way, you and your friend’s financial futures won’t be forever entwined.
Get a Credit-Building Loan
Credit-builder loans take time, but they can be a great way to build credit if you have none. You borrow a certain amount, but instead of giving you the money, the lender will put it in a savings account or invest it in a CD. If you fail to pay, they can remove it from the account.
Once you’ve finished paying the loan off, you get the money back plus the interest that built up while the money sat in the account. The lender isn’t risking anything, so these loans can offer affordable interest rates. Just make sure that the lender is reporting your payment history to the credit reporting companies.
Other Credit Facts You Should Know
- Your FICO score is tied to your credit file with the three major credit bureaus, Experian, Equifax and TransUnion. Your credit limit will vary. For someone with new credit or bad credit, your limit will be lower compared to someone with a lengthier track record of creditworthiness.
- Credit worthiness is a combination of factors, including the types of accounts you have (car loan/auto loan, student loan, personal loans, etc), your payment history, and the period of time you’ve had your cards (credit age).
- Another tip for someone with no credit: consider a secured credit card. Your credit card issuer will tie this to your bank account. Your available credit is the ratio of credit utilization to your credit limit.
- So, if you have a $100 credit limit, and you’ve charged $25, your available credit is $75 dollars, and your credit utilization is 25 percent. You can get a free credit report and free credit score at annualcreditreport.com.
- If you’re unsure about a creditor, contact the the Consumer Financial Protection Bureau. They’re a U.S. government agency that holds banks, lenders, and other financial companies accountable, and ensures you’re treated fairly.
- Studies show people who learn about personal finance (like you are right now by reading this) can improve their psychological relationship with money. Learn more by reading our debt stress study.
If you’re just starting to build your credit, everything counts. You don’t have a long history, so one mistake, one missed payment, or one late payment can make things more difficult for you. Make sure you’re budgeting carefully so you can always make your loan or credit card payment on time.
Finally, don’t forget that mistakes happen. The big credit card reporting agencies aren’t infallible. You should make it a habit to check your credit report regularly. If you see anything on your report that is inaccurate, make sure you dispute it immediately, so your credit score reflects up-to-date information.