According to data from the Consumer Financial Protection Bureau (CFPB), as many as 26 million Americans are “credit invisible,” meaning they have no credit history whatsoever. Overall, this means they never had any data reported to any of the three credit bureaus; they are therefore likely to encounter obstacles if they need to access a line of credit.
This does not mean that these consumers have a zero credit score. No credit history associated with a consumer’s profile means they have no credit score. Read on to find out what no credit history means in practical terms and what steps you can take to build your credit.
What does “no credit history” mean?
A credit score is a mathematical probability of repaying a debt. Credit bureaus compile information about how you’ve handled debt in the past, which is reported by credit card companies and other lenders (like student loan and mortgage providers), and then a Credit scoring model uses this information to generate your score.
So having no credit history doesn’t mean you’ve never paid bills. It simply means that none of your bills or expenses have been reported to the credit bureaus.
You may not have a credit history if you’ve never had a credit card or are someone who prefers to pay for everything, from the house to the car, in cash. A lack of credit history also does not indicate that you are irresponsible. Instead, it means you haven’t used financial products that have helped you build your credit.
Also note that even when you get a line of credit, it may take time for a credit score to appear. According to Experian, you can be assigned a VantageScore as soon as a credit account appears on your credit report.
However, you won’t have a FICO credit score, which is used by 90% of major lenders, until an account is at least six months old. This means that no credit history can be a prolonged problem, even after opening your first account.
Discount rate overview
Credit bureaus collect information, and the three main ones are TransUnion, Equifax and Experian. Credit scoring models are like mathematical formulas, and the most common are FICO and VantageScore.
How Having No Credit History Affects Your Score
Thus, we have established that having no credit history means having no credit score. But where will your real score fall once you start building a credit history?
First, it is important to understand that zero credit scores do not exist. The FICO scoring method and VantageScores range from 300 to 850, so the lowest your credit score can go is 300.
Still, credit scores of 300 to 500 are generally reserved for people who have defaulted on certain debts or those who have debts in collection. This is why scores in this range are generally referred to as “poor”.
Although there is no set initial credit score for those establishing credit for the first time, the first credit score you see may be closer to the “good” range than the “bad” one.
How to check your credit score for free
Do you already have a credit score? And if you do, is your score higher than you thought? There’s only one way to find out. By taking steps to check your credit score, you can see where you stand, good or bad.
Fortunately, there are plenty of ways to check your credit score for free. Capital One’s CreditWise program, American Express’ MyCredit Guide, and Chase’s Credit Journey are available to all consumers, and they all use TransUnion to generate a VantageScore 3.0 for those who sign up.
If you use one of these websites to check your credit and you don’t have a credit score yet, it probably means you don’t have any credit history or any history you’ve built hasn’t worked. not yet registered with the credit bureaus. Either way, checking your credit score is the best way to see where you’re starting.
Six tips for building your credit score from scratch
If you don’t yet have enough credit to have a credit score, it can be difficult to create a credit history from scratch. The following tips can help you build your credit score from scratch.
- Become an authorized user. Becoming an Authorized User on a trusted family member’s credit card can help you build credit as long as the card issuer reports Authorized User activity to the credit bureaus. Use this strategy only with someone who always pays bills on time and uses credit responsibly.
- Get a secure credit card. Secured credit cards require a cash deposit as security, but they report your payments to the credit bureaus, helping you boost your score. Even better, many secure cards come with rewards and no annual fees.
- Consider a credit builder loan. A credit builder loan from a company like Self requires you to make payments into a savings account held in your name. Since your payments are reported to all three credit bureaus, these loans can help you build credit and save money simultaneously.
- Report your bill payments to the credit bureaus. Look for apps that can help you build credit with other bills you pay. For example, Experian Boost can help you build credit using your phone bill, utility bills, and recurring subscription services.
- Pay your bills on time. The most important factor that makes up your FICO score is your payment history, so make sure you always pay your bills — credit card, student loan, mortgage, and all the others — on time, no matter what.
- Keep your credit card balances low. Once you have access to a credit card, you can increase your score by monitoring your credit usage. In most cases, you should strive to keep revolving balances below 30% of your available credit at all times.
The bottom line
Having no credit history isn’t the end of the world, and in fact, you can consider it a clean slate. You may not have a credit history yet, but you haven’t made any credit mistakes that could hurt your score for years to come.
Our advice? Follow some of the steps above to build credit that you can benefit from later in life. With time and responsible use, you’ll get the good credit you deserve.