What to do if you have no credit score

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

To be sure, “cash is king,” but not when it comes to applying for and receiving credit when you need it. Credit reports also play a role when it comes to renting a home, getting a promotion at work or even the rate you pay for auto insurance.

So, for all of you out there who have either no credit or a very limited credit history, here’s what you can do to turn that around and open doors currently closed to you.

What does it mean to have no credit score?

If you don’t have a credit score, it means that your credit profile has no number attached to it.

No credit vs. bad credit

From a lending standpoint, no credit is the same as bad credit. This means that if you have no credit and apply, you may very well be denied.

If your existing score is low, it’s probably because you made some mistakes that caused it to dip.

Your credit score will suffer because of mistakes like making late or missed payments and maxing out credit cards. Negative entries remain on your credit report for seven years, with the exception of Chapter 7 bankruptcy, which stays there for 10 years.

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

For those of you with no credit, you have no negative history to overcome. All your new, positive information will show up undiluted, and your score will build more quickly than someone digging out of a negative credit hole.

Why you do not have a credit score

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

• Perhaps you’re young and haven’t had a reason to try to access credit before.
• You might be an immigrant who either had no credit at home or whose foreign credit file didn’t come over with you.
• You may have avoided credit because your experience has been that the system is stacked against you.
• You could be a member of a minority group that’s able to access only high-interest rate credit, like payday loans.
• Maybe you just enjoy the feeling of paying with a roll of cash while lesser mortals use plastic.

None of these are bad things, but they will keep you from having a credit score and living a robust financial life in the United States.

Credit scores are mainly derived from information in your credit reports. These reports get their information from lenders who “report” five major aspects of your borrowing experience to the three major credit bureaus. Those aspects include:

• Your payment history
• How much of your available credit you use
• What different types of credit you have
• How long you’ve been using credit products
• How recently you’ve applied for new credit

Tip: According to a May 2021 Wall Street Journal report, J.P. Morgan Chase, Wells Fargo, U.S. Bancorp and other banks are launching a pilot program to extend credit to consumers who are financially responsible but who lack credit scores. The report says that banks will consider checking and savings account data from other financial institutions to gauge creditworthiness.

If you have no credit, is your score zero?

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

Using the following VantageScore scale, you can estimate your place in the credit pecking order:

What should you do if you have no credit?

There are now additional ways to obtain a score, including:

Sign up for a credit card

Traditionally, when it comes to credit cards, retail and gas cards are usually fairly easy to qualify for and can be a good starting point for those new to credit.

While having credit accounts in your name is good, there are other steps you can take. One tried-and-true method is to be added to a parent’s or another person’s account as an authorized user. Being added as an authorized user means that while you aren’t responsible for the payments on the account, you still get credit for the positive payments the primary cardholder makes.

You might also look into obtaining a secured credit card. These cards are backed by a deposit with the lender. If you don’t make your payments  on time, the lender can take the deposit . That would, of course, defeat the purpose of building credit. If you choose to go this route, be sure the issuer reports your card activity to the three credit bureaus.

Apply for a passbook loan

Along the same lines is a passbook loan. This is a loan that, again, is backed by your own funds (and you’ll want to make sure your activity gets reported to the credit bureaus).

One advantage of this method is that it gives you the chance to increase your credit mix. The credit mix scoring factor is not nearly as important as payment history and credit utilization in the scoring matrix, but it does count. A passbook loan would is considered “installment” credit, whereas credit cards are “revolving” credit.

Add positive data to your credit report

There are also various products on the market to help you boost your score by taking into consideration nontraditional information called consumer-supplied data. This means you can get information about your positive financial habits posted on your credit reports.

Experian Boost allows you to have on-time cellphone and utility payments as part of your Experian credit report. Also, FICO has released UltraFICO, which allows banking data to be taken into account. And if you want your rent payments reported, check out Experian RentBureau.

While these things will only impact the FICO score you receive through Experian, they are a good start for someone looking to establish credit.

Bottom line

No matter how you start building your credit, be sure to put your best foot forward from the beginning. This means paying your bills on time, every time, and watching how much of your available credit you access in one billing cycle.

Only apply for credit that you need and are confident you’ll qualify for. Use our tool CardMatch™, to help you know find out in advance if you’ll qualify. Do these things and you’ll get a score you can be proud of — just remember to always keep track of it.