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The most frustrating thing about credit might be the chicken-and-egg problem of establishing it: Nobody wants to give you credit when you don’t have a track record of using credit.
But if you’ve never had credit and don’t have a credit score, that doesn’t mean you have a zero credit score. You have the absence of a score: You’re “credit invisible.”
Why you don’t have a credit score
No one has a credit score of zero, no matter how badly they have mishandled credit in the past.
The most widely used credit scores, FICO and VantageScore, are on a range from 300 to 850. As of April 2021, only 3% of consumers had a FICO 8 score below 500. Tommy Lee, principal scientist at FICO, said scores of 300 are "extremely rare."
Reasons you might not have a score are:
You’ve never been listed on a credit account.
You haven’t used credit in at least six months.
You have only recently applied for credit or been added to an account.
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Just as being new to credit doesn’t mean you start at zero, it also doesn’t mean you begin in the basem*nt at 300. After all, if you’ve never had credit, you’ve never made score-devastating mistakes.
When you have no credit history, the credit bureaus just don’t know enough about you to guess whether you’ll pay back borrowed money. And that’s all a credit score is — an estimate of the likelihood you’ll pay back the next credit you’re granted, based on the data in your credit reports.
Once you begin using credit, scores can be calculated. You likely won't start with a good credit score but you won’t be at the bottom of the scale, either.
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How to get credit in the first place
To introduce yourself to the credit bureaus and develop a credit history, you should apply for credit. Two products designed specifically for helping build credit are:
Secured credit cards. These credit cards, as their name suggests, are secured with cash. The deposit is typically the credit limit.
Credit-builder loans. These are loans that are released to you only after you have made the payments. They can be a good way to build a payment history and to accumulate a small emergency fund at the end of a loan term.
Before you apply, request a free credit report from each of the three credit reporting agencies by using AnnualCreditReport.com. If you’ve never had credit but do have a file, that’s a red flag: Maybe someone else’s information has been mixed up with yours or someone is using your identity to get credit. Dispute credit report errors to get them cleaned up.
Once you’re approved for your first lines of credit, follow these basic rules:
Pay bills on time, every time. Payment history influences your scores the most.
Use only a small portion of your credit limit. Keep your balances at less than 30% of your limit, and the lower the better.
Aim for a mix of account types — for example, installment loans with regular payments, such as an auto loan, and revolving debt, such as credit cards.
Follow these steps and you’ll fatten up your credit reports in short order. You’ll also have built a credit score that gets you lower interest rates and access to better credit products — an unsecured credit card or one that offers rewards, for example.
Don’t focus too much on the numbers
You know what credit experts say about credit scores? Don’t get too hung up on the numbers. Your credit score gets recalculated on demand, whether it’s requested 10 minutes or 10 months after the last time somebody asked, and it accounts for the most recent additions to your credit reports.
Rod Griffin, director of public education at Experian, one of the three major credit bureaus, says that you should focus instead on your “general risk” category. Each lender can set its own parameters, but generally, the range for credit scores looks like this:
Fortunately, no one's credit score can equal zero – the range for FICO scores is 300-850 – and even people with poor or bad credit have a credit score of at least 300. A “no credit score” means there is insufficient information for a credit score calculator to compute a score.
That doesn't mean your credit score is zero or even that you have a bad credit score. Without any credit history, you don't fall into any credit range. You're credit invisible.
It just means that none of your bills or expenses have been reported to the credit bureaus. You might have no credit history if you have never had a credit card or if you're someone who prefers to pay for everything from homes to cars with cash.
Not having a credit score isn't necessarily bad, but it's not ideal. It can prevent you from qualifying for loans, credit cards and housing and complicate your ability to rent cars and get cellphone and cable subscriptions. Establishing credit as early as possible is a good way to set yourself up for the future.
Having no credit is better than having bad credit, though both can hold you back. Bad credit shows potential lenders a negative track record of managing credit. Meanwhile, no credit means lenders can't tell how you'll handle repaying debts because you don't have much experience.
But your credit score won't start at zero, because there's no such thing as a zero credit score. The lowest score you can have is a 300, but if you make responsible financial decisions from the beginning, your starting credit score is more likely to be between 500 and 700.
Life without credit isn't impossible. But you'll probably have an easier time if you start building up your credit now. (In the meantime, if you're considering a bad credit loan, you'll want to check out the OppU Guide to Bad Credit Loans here.)
In general, people with poor credit or no credit at all face challenges when applying for certain credit cards, especially ones with a low or promotional APR, lucrative rewards, or other perks. Lenders consider these consumers as higher-risk than those with a good credit history, but for different reasons.
In 2015, we published a report finding that 26 million Americans are “credit invisible.” This figure indicates that one in every ten adults does not have any credit history with one of the three nationwide credit reporting companies.
To get a loan with no credit, look for lenders that accept non-traditional credit histories. Borrowers with limited credit histories may consider payday alternative loans and secured loans. To build credit from scratch, try applying for a secured credit card or credit-builder loan.
When you use your debit card, your money is withdrawn directly from your checking account. But since debit cards are not a form of credit, your debit card activity does not get reported to the credit bureaus, and it will never show up on your credit report or influence your score in any way.
Credit scores are calculated using the information from your credit report. But does everyone have a credit score? Not necessarily. If you have never opened any lines of credit or haven't actively used previously opened accounts for some time, you may not have a credit score.
Turns out, you don't actually start with a credit score at all. You're born outside the system. Even when you turn 18, you aren't automatically assigned a credit score. According to the common FICO credit scoring method, you need to meet some basic requirements to be eligible for a credit score.
Most people's initial credit scores are between 500 and 700 points, depending on the steps taken when establishing credit. However, you won't have a credit score to report if you've never opened a credit account. Read on to learn more about your starting credit score and how to build your credit over time.
Instead, depending on how well you manage your credit, your first credit score might be around the 500 mark. The age of your oldest form of credit plays a role in your credit score. However, working on other aspects can even get your initial credit score to be around 700.
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