The Fabled FICO Score of Zero: What to Do if You Have No Credit, But Need a Loan - NerdWallet
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The Fabled FICO Score of Zero: What to Do if You Have No Credit, But Need a Loan

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Normally, credit scores run from 300 to 850, but there is an exception to the rule: a score of zero. It’s not as frightening as it sounds. A zero doesn’t mean you’re a reckless spender—a score of 350 probably would. It simply means that creditors don’t know what to do with you.

To have a score at all, you need to play by the rules, which include carrying and paying off debt. To have a good score, you need to have debt. Yes, it sounds counterintuitive, but, to creditors, you haven’t proven your borrowing abilities if you’ve paid off loans as quickly as possible and then ceased any further interaction with debt. To them, you’re guilty until proven innocent, and therefore they assign you a score of zero.

That score is no matter if you expect that you’ll never rent an apartment—instead you’ll buy one outright—or take out an auto loan—rather, you’ll pay in full and up front. Chances are, though, you’re not that lucky. But don’t fret. There’s plenty you can do.

If you know or expect that you’ll need to take out a loan in the near future, you should open a credit account immediately. The best credit cards, with top-notch rewards and benefits, however, won’t yet be within your reach. Many of those rewards cards require excellent credit, so don’t bother filling out the application for an American Express Platinum.

You can get your hands on a secured credit card. While they’re marketed to bad-credit consumers, they can sometimes accommodate people who don’t have a credit history at all. One of our favorites is the Capital One® Secured MasterCard®, which asks for a deposit in return for a $200 credit limit.

You can also try your local credit union. These not-for-profit institutions are often the friendliest to no-credit consumers, and they can open a secured card or a different type of loan so you can build some credit.

 Credit reporting: Be sure to check!

Make sure, however, that your credit union reports to all 3 major bureaus, as not all do. You can use GoFreeCredit’s PrivacyGuard to check your credit scores from all three bureaus, then cancelling within 30 days to avoid the $14.99 monthly fee.

“A company has to pay to report—and if they choose not to report at all they can hurt their clients,” said Hallie Hawkins, a certified credit report reviewer. “I have a client who had an OK credit score a few years ago. I warned him that since he had moved all his credit cards, mortgage and auto loans to a credit union that reported only to 2 of the credit reporting agencies, one of his scores will be substantially lower than the rest.”

And, in the future, Hawkins’ client may face higher interest rates: if a lender uses a score from that third agency, they won’t see any data about his borrowing with that credit union.

You can learn from his mistake: make sure your lender reports, make your payments on time and you’ll be fine.

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  • http://twitter.com/Steve_Ely Steve_Ely

    If don’t want to “earn” a FICO Score, and and just choose to live debt free, eCredable can help you prove your creditworthiness if you have a history of paying rent, utilities, and insurance on time. You can use our AMP Credit Report to qualify for a car loan or home loan.

  • http://twitter.com/Steve_Ely Steve_Ely

    If don’t want to “earn” a FICO Score, and and just choose to live debt free, eCredable can help you prove your creditworthiness if you have a history of paying rent, utilities, and insurance on time. You can use our AMP Credit Report to qualify for a car loan or home loan.

  • sat mulln

    good advice. check those credit reports and if you find any negative items make sure you hire a credit repair company. Not a sketchy one but an established one like Lexington Law that has a good reputation and has been in business for many years.

    • Zach Numos

      Thanks for the advice. I have a lot of friends with bad credit. I will pass along the information. I want to make sure the company has a track record of success. I believe there are some promos with their credit repair as well.

  • sat mulln

    good advice. check those credit reports and if you find any negative items make sure you hire a credit repair company. Not a sketchy one but an established one like Lexington Law that has a good reputation and has been in business for many years.

  • TimmyP

    The problem with the “credit score” is that it creates a reason for people to get into debt to attain a score. Therefore it is an “I have debt” score. It is not an indicator of how well you pay your bills, it is an indicator of how you pay for currently borrowed money. My credit report shows two,paid off early, mortgages and several other good, paid off debts. My credit score is “ERROR” because I now pay all my bills in full when they are due. Car insurance, homeowners insurance, health insurance, life insurance, utilities, kids college tuition, cell phones, cars…and I have no credit cards.
    The problem with the scoring system is nobody reports “payment in full when due” to the credit bureaus. Because my credit score says “error”, even though I have more than 20% for a down payment on a mortgage, I can’t even get a “no score” mortgage because I can’t prove monthly payments on enough accounts because I pay for most accounts in full annually.

  • TimmyP

    The problem with the “credit score” is that it creates a reason for people to get into debt to attain a score. Therefore it is an “I have debt” score. It is not an indicator of how well you pay your bills, it is an indicator of how you pay for currently borrowed money. My credit report shows two,paid off early, mortgages and several other good, paid off debts. My credit score is “ERROR” because I now pay all my bills in full when they are due. Car insurance, homeowners insurance, health insurance, life insurance, utilities, kids college tuition, cell phones, cars…and I have no credit cards.
    The problem with the scoring system is nobody reports “payment in full when due” to the credit bureaus. Because my credit score says “error”, even though I have more than 20% for a down payment on a mortgage, I can’t even get a “no score” mortgage because I can’t prove monthly payments on enough accounts because I pay for most accounts in full annually.

  • David Ward

    THIS VERY BAD ADVICE!!!! The only way to have a good credit score is to kiss the A$$ of banks and lenders, and give them a lot of money in the form of interest. They will ‘reward’ you with a high ‘score’ and this allows you to borrow even more money and pay them more interest….Wow, what a great reward. SAVE UP AND PAY FOR WHAT YOU WANT! if you cant pay for it, you cant afford it. Have you ever heard or a bankruptcy being filed without debt…No.. How about a Foreclosure…Nope, doesn’t happen either.
    The common come back to debt-free living is this, ‘ya, but what about a house’. Guess what, they except cash at the closing for a house. If you ‘cant’ (meaning won’t) wait, you can utilize what is called manual underwriting with companies like Church Hill Mortgage (and other underwriting companies with a brain, most are local companies). You SHOULD NOT have a FICO score, It shows you are (in the most case) income statement orientated (earn money to spend on expenses) instead of Balance Sheet orientated (spend money to buy things that grow into more money, aka how you become wealthy in most cases). You can live debt-free without being wealthy unlike the author implied, but you have to be intentional about money in order to do it. The difference between these philosophy can be the difference between being ‘stuck’ in middle class and choosing to leave a legacy for your children’s children.
    Ask yourself what do you need to write a blog like this author…just a keyboard. That doesn’t mean they know what the flip they are talking about. Use critical thought for yourself and you can see the Zero Score is the way to go.

  • David Ward

    THIS VERY BAD ADVICE!!!! The only way to have a good credit score is to kiss the A$$ of banks and lenders, and give them a lot of money in the form of interest. They will ‘reward’ you with a high ‘score’ and this allows you to borrow even more money and pay them more interest….Wow, what a great reward. SAVE UP AND PAY FOR WHAT YOU WANT! if you cant pay for it, you cant afford it. Have you ever heard or a bankruptcy being filed without debt…No.. How about a Foreclosure…Nope, doesn’t happen either.
    The common come back to debt-free living is this, ‘ya, but what about a house’. Guess what, they except cash at the closing for a house. If you ‘cant’ (meaning won’t) wait, you can utilize what is called manual underwriting with companies like Church Hill Mortgage (and other underwriting companies with a brain, most are local companies). You SHOULD NOT have a FICO score, It shows you are (in the most case) income statement orientated (earn money to spend on expenses) instead of Balance Sheet orientated (spend money to buy things that grow into more money, aka how you become wealthy in most cases). You can live debt-free without being wealthy unlike the author implied, but you have to be intentional about money in order to do it. The difference between these philosophy can be the difference between being ‘stuck’ in middle class and choosing to leave a legacy for your children’s children.
    Ask yourself what do you need to write a blog like this author…just a keyboard. That doesn’t mean they know what the flip they are talking about. Use critical thought for yourself and you can see the Zero Score is the way to go.

  • Brian Baker

    A Zero score does not mean you never had credit. My score is zero now because I paid off all my debt after years of being in debt with great credit. I just haven’t used credit of any type in 5 years. So my score is a zero. I was turned down for car loans just resent. I contacted one and asked why and they based this on my credit score. So I asked them to look at my credit history which isn’t as easy or as fast as the score. Upon looking at my credit history I was not only approved, but offered their lowest interest. But because they turned me down the first time i turned them down.

  • Brian Baker

    A Zero score does not mean you never had credit. My score is zero now because I paid off all my debt after years of being in debt with great credit. I just haven’t used credit of any type in 5 years. So my score is a zero. I was turned down for car loans just resent. I contacted one and asked why and they based this on my credit score. So I asked them to look at my credit history which isn’t as easy or as fast as the score. Upon looking at my credit history I was not only approved, but offered their lowest interest. But because they turned me down the first time i turned them down.

  • Eric West

    Weird. I, too, have a zero score. But, I do have a car loan. So, I don’t know what’s up with that. I also have a student loan in non-repayment status. I have plenty of years of history. However, it was so awful that I just stopped getting credit cards and just kept the car payments. But, I don’t know why i’m at zero. That is weird. But whatever.

  • Eric West

    Weird. I, too, have a zero score. But, I do have a car loan. So, I don’t know what’s up with that. I also have a student loan in non-repayment status. I have plenty of years of history. However, it was so awful that I just stopped getting credit cards and just kept the car payments. But, I don’t know why i’m at zero. That is weird. But whatever.

  • Zach Marrs

    I have a no score and just applied for that Capital One Secured “rebuild your no credit/bad credit” card and was declined for having “no credit/bad credit” So….apparently this is all bullshit.

  • Zach Marrs

    I have a no score and just applied for that Capital One Secured “rebuild your no credit/bad credit” card and was declined for having “no credit/bad credit” So….apparently this is all bullshit.

  • pnwfemale

    Toyota Financial services gave me a car loan and I made the final payment last month. I applied for Capital One’s Credit Access card to help rebuild my credit; but, was declined. Funny thing is, I had excellent credit before I got married. Once single, I had to rebuild my credit again. Now, it seems that credit card issuers only look at the credit score instead of credit history. Student loans should not count against somebody.

  • nationalslave

    I just received a rejection letter for a small personal loan. I actually expected it since my credit was affected by long term unemployment. What shocked me was the fact that I was rejected based on “No credit file/history, 0 credit score. Why is this? I currently have a collection agency calling me and I paid off a car 4 years ago. My rating isn’t great but it shouldn’t be “0”. What to do, I need help. Bank says it happens alot due to a glitch from Experian. I may have to move in the near future and this really scares me, having a “0” score. Help
    Thanks
    Dan

  • Mike Arienti

    Budget smartly. Get out of debt. Save often. It’ll take time and sacrifices but you’ll be in a position where you could be issuing loans instead of applying for them.

  • CYCO1631

    As a Dave Ramsey Disciple, my credit score is zero, and I intend to keep it that way. I don’t really play by the rules you see. I have no credit cards, a paid for car (my wife’s car was also bought for cash), 50k in student loans paid off three years ago… outside of reporting range, a rather substantial bank account (built from working, not built through trust funds or inheritance), and no other debt of any kind. We do however have at least two years good standing with our landlords, cable company, electric provider, and pay all outstanding medical bills on time or before time with cash. To get a mortgage, I expect to find a bank willing to actually look at my life, rather then just run my FICO score. I also expect to qualify with at least 20 percent down.