Credit scores are three-digit numbers that measure your degree of responsibility in managing your money and paying off your debt. These scores are generated by the information in your credit report, so it follows that in order to have a credit score you must first have a credit history.
Can you improve your credit score if you have a limited or no credit history? Yes you can, but first it’s important to understand a little bit about how credit scoring works.
- A credit score is a three-digit number that measures the responsibility with which you manage your money and pay off your debts.
- Credit scores are calculated using information from your credit report, and different credit score models may apply.
- Everyone’s credit score starts out differently, although the lowest credit score you can have is 300.
- Some of the best ways to quickly improve your credit score when you don’t have a credit history include becoming an authorized user, opening secured credit cards, or getting a small loan in your name.
How credit scoring works
Credit scores don’t just magically appear; instead, they are calculated using different credit scoring formulas. The FICO credit score model is the one used by 90% of major lenders in credit decisions. VantageScore is another credit scoring model.
Both models use the information in your credit report to calculate credit scores. A credit report contains details about your financial history, including:
- Number of credit accounts you have in your name
- Balances and payment history for these accounts
- New credit requests
- Public documents, including judgments, bankruptcies and foreclosure proceedings
If you don’t have a credit history, there may not be a lot of information on your credit report. This, in turn, can make it difficult to calculate a credit score. According to the Consumer Financial Protection Bureau, approximately 45 million Americans are “credit invisible,” which means they don’t have enough credit history to generate a score.
Having no credit history is not the same as having bad credit, which means you have a low credit rating due to past financial mistakes.
Where Does Your Credit Score Begin?
Having no credit history doesn’t necessarily mean your credit score starts at zero. This is because the FICO and VantageScore credit models don’t go that low. Instead, the lowest possible credit score you can have with either model is 300. A score of 850 is the highest score you can get.
If you don’t have a credit history, you probably don’t have a credit score. Once you start building and improving your credit, your score can start to 300 and go up from there. So what affects your credit scores?
The short answer is that it depends on the credit scoring model. As FICO scores are the most widely used by lenders, here is a breakdown of how these scores are calculated:
- Payment History-Thirty-five percent of your FICO score is based on payment history, on-time payments helping your score, and late payments hurting your score.
- Use of credit—Thirty percent of your FICO score is based on credit usage, which is the amount of your available credit limit that you are using at any given time.
- Credit age—Fifteen percent of your FICO score is based on your credit age, which is how long you use credit.
- Credit mix—Ten percent of your FICO score is based on the types of credit you use, such as revolving lines of credit or installment loans.
- Credit inquiries—Ten percent of your FICO score is based on how often you apply for new credit, resulting in a rigorous credit check.
You can visit AnnualCreditReport.com to get a free copy of your credit report, which can tell you if there is enough information to generate a credit score.
The fastest ways to accumulate credit
Improving your credit score when you don’t have a credit history can be difficult. Nonetheless, there are ways to create credit from scratch, some of which can generate profits faster than others. If you want to build credit fast, here are some of the best ways to do it.
Become an authorized user
Authorized users have debit privileges on someone else’s credit card, but they are not responsible for the debt. Becoming an authorized user can allow you to build on someone else’s good credit history and start building credit immediately.
The account will appear on your credit report as well as that of the original account holder. As long as they practice good credit habits like paying on time and keeping their card balances low, their positive account history is reflected on your credit report.
Becoming an authorized user is not the same as sharing a common credit card account, for which you would both be equally responsible for the card balance.
Apply for a secure card or credit card
Secured credit cards are designed for people with bad credit or no credit at all. These cards usually require a cash deposit to open, which doubles as a line of credit. As you make purchases, your credit limit is reduced. As you pay your bill each month, you can free up available credit.
If you want to create credit quickly with a secured card, the easiest way to do that is to pay on time. Remember that with FICO credit scoring, the payment history carries the most weight. You might start to see a positive movement in your credit score after just a few months if you pay regularly on time.
Try a store credit card
Most store credit cards offer billing privileges only at the issuing store and its brands or partners and work the same as other credit cards, although they may be easier to approve compared to cards. traditional credit. Some may even offer rewards on purchases.
However, you should be careful with the Annual Percentage Rate (APR) and the credit limit. Since store credit cards may have lower credit requirements for approval, they may charge a higher APR, which means carrying a balance on one of these cards for a month to the other could cost you more money. And a low credit limit means you can max out your card quickly, resulting in a higher credit utilization rate, which can lower your credit score.
Get credit for rent and utility payments
Rent and utility payments don’t automatically factor into your credit score calculations, but there are services that can help you include them, so you can build credit faster. Experian Boost, for example, is a free service that can help you increase your credit score by reporting payments for utilities, phones, and streaming services. According to Experian, the average user saw their FICO 8 credit score increase by 13 points as a result.
Experian Boost also includes free credit score monitoring, which can help you track credit score changes over time.
This service may be worth considering if you don’t have a credit card or loan in your name yet. Just keep in mind that any credit score change associated with Experian Boost would only be reflected in the FICO 8 version of your score. Since there are several versions of FICO that lenders can use to assess credit, if a lender checks something other than FICO 8 when you apply for a loan, you might not see much benefit from having these payments reported. on your credit history.
What is a good credit score?
A good credit score is defined differently, depending on the model you use. A good FICO credit score is between 670 and 739. Anything below this point would be fair or poor credit, while anything above is either very good or exceptional credit.
What is a credit report?
A credit report is a collection of information about your financial history. Creditors pass information to credit bureaus, including when new accounts are opened, what requests you submit for new credit, payment history, and balances. This information is used to produce your credit report and your credit scores.
What’s the fastest way to increase your credit score?
The fastest ways to increase your credit score include paying bills on time, becoming an authorized user, increasing credit limits without increasing your balances, and paying off debt. Keep in mind, however, that it may take several months to see significant improvements in your score.
The bottom line
Improving your credit score when you don’t have a credit history might not be an easy task, but it can be worth the effort. The higher your credit scores, the easier it may be to get approved for new loans or lines of credit. Higher credit scores can also translate into lower interest rates, saving you money when you borrow. Taking steps to open a secure or retail card, as well as becoming an authorized user, are just a few of the ways you can start building credit fast.