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No Credit Score Doesn’t Mean a Zero Credit Score

You have no credit scores unless you borrow money. Once you do, pay bills on time for a few months and you'll start somewhere in the middle.
Credit Score, Personal Finance
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No Credit Score Doesn't Mean a Zero Credit Score

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.”

You have a different problem from someone who’s had credit and messed it up. That person has the harder task of restoring their credit.

You just need to get on lenders’ radar by building your credit in the first place. Then the data in your credit reports will earn you a credit score, and a good score will earn you better access to financial products.

What’s the starting point for your score?

The credit score scales used in most lending decisions, FICO and VantageScore 3.0, start at 300 and go up to 850. But just as being new to credit doesn’t mean you start at zero, it also doesn’t mean you begin in the basement at 300. After all, if you’ve never had credit, you’ve never made score-devastating mistakes.

Think of it like the first pop quiz of the school year. If you missed it because you were at the dentist, that’s different from being in class and answering every single question incorrectly. Eventually, your teacher will evaluate your performance, but not until there’s some data.

When you have no credit history, the credit bureaus don’t know enough about you to guess if you’ll pay back borrowed money.

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 and receive a score, it will depend on several things: how well you handle that credit, how long you’ve been using credit and the mix of credit types you’re using. Your score won’t start at the very top, but it won’t necessarily be as low as possible, either.

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. You can start building credit with products that protect lenders from the risk you won’t repay, such as secured credit cards and credit-builder loans.

Before you apply, request a free credit report from each of the three credit reporting agencies. You’re entitled to one from each agency each year. 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 any errors to get them cleaned up.

Recipe for good credit: All bills paid on time, credit card balances low, and a mix of installment and revolving accounts.

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 instance.

Don’t get too hung up on numbers

There once was a possible credit score of zero — and it was the best on the scale. Experian Risk Analytics developed something called the National Risk Score, a number between zero and 1,300 designed to predict the risk that you’d eventually file for bankruptcy. The lower your number, the better. Under the main scoring models these days, the opposite is true.

But 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 for Experian, 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:

Paying every bill on time and keeping balances low will help you have good scores — no matter which scoring model a lender uses to get a snapshot of your credit habits or when that snapshot is taken.

This article updated Nov. 4, 2016.

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