What happens when you don’t have a credit score? Your credit score can mean a lot of things.
It can mean the difference between accessing a loan or being able to access a decent loan with great interest. It might factor in renting an apartment or even the type of insurance premium you pay. Hence credit scores are highly important to your financial health. But what if you don’t have a credit score? Or perhaps it seems like you don’t? here are possible scenarios that might emerge;
1). Know that You Can Have Plenty of Credit Scores
In the U.S, there are three credit bureaus that compile credit scores into credit reports. So, your credit scores would depend on which credit report is used. For instance, if a report of your total personal expenditures is shown only on two of your reports, your credit score is likely to increase with the third report. Additionally, there are lots of different methods for scoring credits like VantageScores that most money apps show. That said, your FICO scores will likely be pulled by creditors whenever you apply for a loan line or line of credit
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2). Your Credit Scores Depend on the Information on Your Credit Reports
Your credit report uses the following to calculate your credit scores:
- Payment history reflects 35% of your total score. This clearly means that if you consistently pay back loans on time, then you will have a better chance of having a good credit score.
- The rate you use your credit counts for 30%. With this, you will wish to minimize the use of your credit.
- Credit account history awards you a 15% score. This means that the longer you have your credit account open, the better scores you accumulate. So, it is profitable to start nurturing your credit account earlier.
- The different types of credits you have added another 10% credit score to you. Do not panic because this does not count for a large part of your score. So, do not hurry to obtain loans just to get a reward with this score.
- Each new credit awards you a 10% credit score. This measure considers the length at which you request credit. For instance, if you request loans at six months intervals, your score will be healthy. If you stay more than six months, it may send a wrong signal to your creditors.
3). Building a New Credit Score Takes Time
Though it is not easy to start from scratch, you should also know that you won’t necessarily be starting from ground zero. In a typical credit scoring system, scores can be from the lowest of 300 to the highest of 850. Perhaps you don’t have any credit score, which means that your credit report lacks sufficient data to calculate your score. So, the way out is that you will not start from scratch. Rather, you will probably start from the middle; maybe around 700.
Kindly note that credit scores always fluctuate. So don’t panic if your first score looks poor. As long as you have credit, there are several things you can do to enhance your credit score.
4). You Need More Credit to Develop Your Credit Score
It is true that you need more credit to enhance your credit score but you might have few options if you don’t have a credit score. The implication is that money lenders may not have any information regarding your credit history and it will be difficult for them to decide on whether to comply with your loan request.
That said, I recently came across a suggestion that makes sense to help build your credit history; “consider taking loans when you don’t need them and pay back on time, to build your credit”. You should also ensure you always pay your utility bills on time as they factor in your credit score.
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5). A Secured Credit Card Can Help Jumpstart Your Credit Journey
This is a special product that helps people who have a very low score or those who don’t even have a credit card to start growing a healthy credit history.
Immediately after you create a Secured Credit Card, you are expected to make a deposit that is nonrefundable in advance and is of the same value as the worth of the credit card. For instance, if you deposit $100, it means your limit of spending on that card will center around that same $100. The reason for this is that the company you registered the credit card with will keep the card in the form of collateral, just in case you pile up debts that you find hard to pay back.
In the event you pay on time and maintain a low balance, then you are on your way to a healthy credit journey. One smart method you can adopt in achieving this is by placing a little but regular expense on the card and trying to pay it back as soon as possible. With time, you may be allowed to change the account to a non-secured card and get back the $100 you deposited.
6). You Can Consider a Retail Credit Card
Though this may attract high-interest rates, this type of credit card does not need many conditions to qualify. It works perfectly when you have a retail shop you always buy things from. In this case, you can create a credit card with them.
One of the advantages of doing this is that the retailer can offer you some discount or other mouthwatering concessions, but be careful that you will have to pay them back completely every month.
Kindly note that retail cards attract higher interest rates. So, if you leave a balance unpaid, the interest will keep piling up for you.
7). Inform the Credit Bureaus About Payment of Your Utilities
Perhaps you have been consistent in settling various bills and utilities at home, it is important you consider adding those payments to your credit report in order to enrich your payment history.
Beginners can take advantage of this pattern, as it freely allows you to include your normal subscriptions and other utilities to your credit report. You should know that this arrangement attaches your bank account to the credit card in order to get information about the several payments you always make.
8). A Trusted Relative Can Help Facilitate Loan for You
If you wish to obtain a loan, you can possibly ask your relative or trusted friend with strong credit to stand as a guarantor for you. A guarantor can serve as your backbone and will bail you out in the event you cannot easily repay your loan. Also, their credit scores can be affected badly in case you make late payments or when you keep accumulating your unpaid balances.
It is a huge gesture when someone offers to stand as a guarantor for your loan. This is why you need to be very honest and transparent with the individual regarding your financial status. So, it is advised that immediately after you receive your loan, you need to start making timely repayments in order to have a solid credit history.
9). Partner with Someone to Piggyback on their Account
Getting approval to become an official user is an uncommon favor, as it can help to boost your little credit. The benefit you get as an official user is that you will be included in the person’s credit card account as an additional user. With this arrangement, the information regarding that account such as the rate at which the credit is used, the age of the account, as well as the payment history will be reflected in your personal credit report.
Kindly note that this type of partnership demands a lot of trust in both parties and the owner of the account may decide to give some conditions before granting you access. Also, you should know that if the account owner fails to make timely payments, your credit score can be badly affected.
10). You Can Use Credit Builder Loans to Grow Your Scores
One of the smart ways to grow your credit history is by using a Credit Builder Loan which you can obtain from a financial organization. Normally, you will be required to make payments monthly, over a period of time, which will be included in your credit report. Immediately if the loan is approved, you will receive your money.
Nevertheless, once you have taken the loan, it will no longer indicate “active” on your credit report, which might make your scores go low. Therefore, if you desire to get a healthy credit score, then you will have to use another credit builder alongside a credit builder loan.
11). Avoid Being Emotional About Your Credit Scores
Having a slim credit score can be very discouraging but do not totally give up. As long as you don’t have unfavorable or damaging information on your credit reports like late payments or other offenses, know that you are good to go.
Also, it will be beneficial if you will continue to monitor your credit reports on the bureaus to ensure that all your information is still accurate. Just know that any misrepresentation of your information could negatively affect your report and it is your responsibility to immediately report the issue to the credit bureau.
It can be quite disconcerting when you don’t have a credit score, but there’s light at the end of the tunnel. Use the ideas discussed in this article, and you will be off to a great start to build a healthy credit report and score to boost your financial health.