Watch just a few minutes of T.V. and you’re bound to see them — ads promoting credit card rewards, low rates on a home refinance, sweetheart deals on auto loans, and services to help you repair your credit.
From the looks of it, everyone has credit — whether that credit history is good or bad. But the surprising truth is that 45 million Americans have no credit score whatsoever.
If you’re in that group of more than 45 million people, you may have questions. Why don’t you have a credit score? Are you missing out by not having one? And what can you do if you’re in the market for your very own credit score?
A credit score is a three-digit number that allows lenders to compare your credit worthiness easily to other people’s. An individual’s credit score is generated by a formula that considers and weigh key information in that person’s credit history report.
By far, the most commonly used credit scores are the FICO score and VantageScore. They represent two different formulas for computing a person’s score. So — while your FICO score is likely in the same ballpark as your VantageScore — they’re not necessarily the same. The most recent versions of both the FICO score and VantageScore range from 300 to 850, which represents a perfect score.
However, not everyone has a credit score.
In order for a FICO score to be generated in your name, you’ll need to meet both of these criteria:
At least one credit account that’s been open for six months listed on your credit history report
At least one account with activity reported to the credit bureaus in the past six months
VantageScore meanwhile typically offers those new to credit a quicker path to a credit score. You’ll have a VantageScore generated on your behalf once you have both of these:
At least one credit account that’s been open for one month listed on your credit history report
At least one account with activity reported to the credit bureaus in the past 24 months
So, what does it mean then if you have no credit score? Simply that you haven’t yet met those criteria. Once you do, however, there’s no action needed on your part to produce a score. It will automatically be calculated on your behalf, based on your credit history report.
But having no credit is in no way the same as having bad credit. No credit indicates that there’s not enough historical information on you for lenders to predict how you’ll handle credit in the future.
Bad credit, however, is a reflection of a credit report that shows you’ve mismanaged your credit in the past. Numerically, it looks like this: A FICO score of 580 to 669 is generally considered “fair,” while anything below 580 is classified as “poor.” A VantageScore of 601 to 660 is “fair,” 500 to 600 is “poor,” and below 500 is “very poor.”
Bad credit typically results from a series of missteps, as opposed to any one-time mistake. Individuals with bad credit usually have some combination of the following on their credit reports:
Missed payments or late payments that are at least 30 days past due
High credit utilization — actively tapping at least 30% of their available credit limits
Frequent applications for new loans or lines of credit
Accounts sent to collections
Charge-offs or settled accounts
According to a report from the Consumer Financial Protection Bureau, American adults without credit scores fall into one of two categories.
“Credit invisibles” are people who don’t yet have a credit history report. Since a credit score is determined from someone’s credit report, they don’t have any credit scores as a result. About 1 in 10 American adults are credit invisible.
Unscorables are those people who do have a credit report, but insufficient histories don’t provide enough information to produce a credit score. The cause for their limited credit histories could be any one of the following:
You don’t have any credit accounts.
Your credit accounts aren’t reported by your lender to the credit bureaus.
Your reported accounts are too new to provide enough history.
Your reported accounts have been inactive for an extended period of time.
Most 18- and 19-year-olds are credit invisible or unscored, but the majority of Americans aged 20 or above do have at least one credit score.
Whether you have bad credit or no credit, there are definite advantages to building (or rebuilding) a strong credit history:
Access to financing: Getting approved for credit can be tough (though not impossible) without a compelling credit score. A great score, however, proves your past success in handling credit responsibly . . . and gives lenders reason to believe you’re a safe bet for future financing.
Lower interest rates: In general, lenders offer those with higher credit scores lower interest rates on credit cards, mortgages, auto loans, student loans, personal loans, lines of credit, and other types of financing.
Lower insurance premiums: In most states, the price you pay for auto, home, or renter’s insurance depends on your insurance score, a specially formulated version of a credit score. So, the cleaner your credit history, the lower rate you’ll generally see on your next bill.
Less hassle: With below average or missing credit, you may need to pay a security deposit for your utilities or cell phone. It could deny you a new place when you’re looking to rent a home. And it might even trip you up if you’re applying for a job that requires a credit check.
Ready to build yourself an enviable credit history? If you’ve currently got no credit, you’ll want to engage in activity that produces a credit report in your name. Consider the following ways to kickstart your report:
Stop being invisible. When choosing a lender, look for one that reports your usage to the credit bureaus.
Get a gateway card. Open a secured credit card if you have trouble qualifying for a traditional credit card.
Apply for a specialized loan. Opt for a credit-builder loan, a small loan designed to help those with insufficient credit build a credit history.
Team up. Piggyback on someone else’s great credit history by becoming an authorized user on that person’s credit account.
Get creative. Use a rent-reporting service, so your rent payments — which ordinarily wouldn’t appear on your credit report — add heft to your thin credit history.
Once your credit report is live, follow these strategies for boosting your credit score and protecting your financial reputation:
Make prompt payments. Pay at least the minimum owed each month on time every time.
Limit your credit usage. Aim to use no more than 30% of the credit to which you have access.
Limit new credit inquiries. Avoid applying for several new loans or lines of credit in a short time frame.
There’s nothing inherently bad about having no credit score to your name. But, with some simple strategies, you can start building a strong credit history. And, over time, you can work toward a great credit score all your own.