What is a Credit Score and Why is it Important Credit score is a numerical representation of credit standing and ability to pay for credit that is normally displayed as a three-digit number. The score is normally between three hundred and eight fifty, and a higher score means that you are less risky for the lenders. Lacking any credit history or a poor credit score poses a disadvantage when it comes to securing loans and credit cards, insurance, cell phones, rental homes, and even a job. Therefore, it is essential to build and maintain a credit score regardless of having no credit card in the past.
How credit scores are calculated Credit scores are determined with the help of data from the three credit reporting agencies – Experian, Equifax, and TransUnion. The scoring models take into account the kinds of credits that one employs, his payment records, the amounts of credits borrowed, the length of the credit history, and the number of new credit inquiries. For those individuals who have no experience with credit cards or any other credit products, sufficient credit history may not be available to arrive at a credit score.
No Credit Background Most likely you do not have a credit record with the consumer reporting agencies if you are above 18 years of age and have never applied for any kind of credit including a credit card, loan, mortgage, or any other line of credit. Should you have no credit history, your credit file will be labeled as thin and you might not even have a credit rating. There is no record of how successfully or poorly you have handled credit if you do not have at least one open, active account reported to the bureau.
Given this, suppose I had never carried a credit card? What would be my credit score? You have no credit score at all if you have never sought any kind of credit. Lack of a score indicates to possible lenders that your creditworthiness is yet unknown. For this reason, late payments or a significant debt load still make no credit history worse than a low credit score.
Having never borrowed money, why do I need a good credit score? There are compelling reasons to establish good credit even if you have always paid with cash or debit and never held long-term debt: There are several reasons to establish good credit even if you have always paid with cash or debit and never held long-term debt:
- Potential for Higher Limits – When you need more credit in the future, you are more likely to be approved because of your credit history and scores. Without credit score lending institutions consider applicants as being higher risks to lend to.
- Better Interest Rates – This means that people with good credit scores can access money at better interest rates hence keeping the cost of borrowing money more favorable in the long run. This implies that if you have a poor credit score or no credit at all, then you are likely to be charged a higher rate of interest.
- Right to Lease Property – Some of the landlords verify applicant credit reports when searching for tenants. The lack of credit history can be used to reject potential renters.
- Employment Eligibility – Certain employers may consider an individual with a good credit background as one who can be trusted with responsibilities. Credit check issues: Job applicants may be affected by poor or no credit scores.
- Premium – Insurance Companies use credit-based insurance scores to determine the rates of premiums. The insurance policy has a provision of charging high premiums to those with little or poor credit ratings.
- Cell Phone Plans – Depending on the type of cell phone, that a particular service provider is offering, he or she may need to conduct a credit check before extending the cell phone service. Lack of credit can refer to paying hefty deposits.
Building credit from a situation where there was no credit history is not an easy thing to do but if one has to do it, the following steps can be taken: If you currently have no credit score because of never having used credit in the past, here are proactive steps to establish a credit history and build your scores: If you currently have no credit score because of never having used credit in the past, here are proactive steps to establish a credit history and build your scores:
To get a Secured Credit Card, one has to apply for it. Secured credit cards work with a refundable amount that is used as the credit limit for the card. They are less likely to decline your application if you have no credit history, and can be useful to show credit usage responsibly and establish a credit history. Ensure that you check whether your secured card provider is reporting the activity to the major credit bureaus.
Become an Authorized User Another method is where you can ask a family member or a friend with a long credit history to include you as an authorized user of their oldest credit card account. Being an authorized user the payment history on this card will start reporting to your credit reports and even affect your credit score even though you are not the account holder.
This is one of the ways through which one can open a credit builder loan. Credit builder loans enable customers who do not have credit scores or have low scores to prove their ability to pay back the loans for an extended period. The funds for the loan are received and then you make regular, equal payments. Once payments are made in full then the loan amount is disbursed to the borrower. Your positive payment history leads to credit.
Student Loans with a Co-signer: How to Apply If you are in school, you can borrow federal student loans which do not require credit checks or approval. Also, when seeking private loans beyond federal loan caps, having a creditworthy cosigner helps increase your likelihood of securing the loan. Balancing student loan responsibility is beneficial when it comes to setting up a credit history.
Options to Credit Cards Store cards, credit building cards, and loans from credit unions can help establish your credit reports when unsecured credit is hard to come by. Maintain these first credit lines responsibly to enhance your credit score over time.
Review credit reports and track improvement You can get your credit file, straight from Equifax, TransUnion, and Experian through www. annualcreditreport. com and it is free if you request it once per year. When using the three reports, ensure that you verify all the personal information, accounts, inquiries, and payment statuses that are indicated on the reports. It also enables you to track changes to your credit records and improvement in your scores by requesting your credit history from time to time.
Be Patient and Persistent Earning credit for the first time may take some time at first. Combining this with sound credit management when opening new credit accounts, your confidence and scores will gradually build up. Keep the first purchases and credit limits small, keep balances low, pay bills on time every month, and do not forget to monitor reports and scores regularly. If you establish good credit early on, you are likely to build a good reputation that will attract better rates and deals in the future.
Call now for expert credit repair services: (888) 803-7889
Read More:
What is considered a strong credit score?
Which credit scores are most accurate?
What credit score is needed to buy a 200k house?
Is there a safe way to check my credit score?
Can I raise my credit score 200 points in 30 days?
