You probably feel good if you’ve avoided debt so far — no loans or credit card bills dragging you down each month. Good for you.
When you check on your credit score… you get nothing.
Here’s why you have no credit, what no credit score means for your financial future and steps to take to build a credit score from scratch.
What Does It Mean to Have No Credit Score?
Having no credit score means you don’t have any activity for credit bureaus to use to calculate a score. That often means you have no credit history at all — you’ve never applied for a credit card or borrowed money.
But it could also mean you just don’t have recent history. If you took out loans or credit cards in the past, but closed the accounts and haven’t had any activity in the last seven to 10 years, you may have no credit score, but still have a credit history.
Unfortunately, “there isn’t an exact time table for being unscorable,” says Beverly Harzog, U.S. News & World Report’s consumer finance analyst, “because everyone has a unique credit file and many factors are considered.”
What Determines Your Credit Score
Credit bureaus — you may know the major ones, Experian, TransUnion and Equifax — need activity to calculate a credit score, i.e. your VantageScore or FICO score. Companies let them know when you do things like apply for credit, take out a loan, swipe your credit card and make (or miss) debt payments. This information determines your score.
No activity? No score.
About one in 10 American adults are “credit invisible,” the Consumer Financial Protection Bureau reported in 2016.
If you have no credit, your borrowing options are limited. Lenders and credit card companies use your score to determine how much to let you borrow and at what interest rate. A low or no score means these are usually unfavorable.
Difference Between No Credit vs. Bad Credit
Good news: No credit isn’t the same as bad credit. They both tell credit bureaus’ algorithms you haven’t proven to be a responsible borrower — but “no credit” tells them you haven’t proven to be an irresponsible borrower, either.
When you try to retrieve your credit score or report and have no credit, nothing will show up. Bad credit shows up as a history of damaging activity and a poor credit score, typically defined as below 580 (though your credit options remain pretty limited until you reach at least 620).
How to Build Credit When You Have No Credit History
Building a credit history takes a little time, but some strategy can get you there relatively quickly and efficiently.
Scott Bates, a content marketing professional and founder of the Money and Bills blog, built his credit from scratch starting with a store credit card at age 19. He bought his first home in the San Francisco Bay Area at 21 years old.
“It felt like they wanted to take a chance with me,” Bates says of getting that first approval, which set him up for early homeownership and financial success.
Here are some tips from Bates and other credit experts on how to build credit from scratch.
1. Become an Authorized User
You aren’t required to have a credit card to build a credit score, but it’s one of the surest ways to do it. You can ease into it by asking someone — your parents or other family members are good options — to add you as an authorized user on their card.
In most cases, activity on that credit card gets reported to their credit history and yours, regardless of how much you actually swipe the card. You can benefit from their responsible credit use. Their irresponsible activity could also hurt your credit score, so choose wisely.
2. Open a Secured Credit Card or Student Credit Card
Secured and student credit cards both exist to help you build credit through careful credit card use, but each is useful for a different consumer.
Secured credit cards require a security deposit and usually start with limits as low as $200, usually the same amount as your deposit.
Student credit cards are usually unsecured with a low credit limit and may just require you to be a college student. These sometimes have tougher credit score and income requirements than secured cards.
3. Take out a Credit-Builder Loan
A credit-builder loan, like those from Self Lender, exists solely to put you on the credit map. It’s usually so small you wouldn’t actually use the funds for a purchase like you would an actual loan.
The other difference is you don’t get the funds until you’ve made all the payments — so, as G. Brian Davis, director of education at SparkRental points out, it’s not even really a “loan.”
“Instead of borrowing money from a lender, you choose a monthly payment plan with the ‘lender,’ and make the payments as promised,” Davis says. “The lender sets aside your payments in your own personal escrow account, and at the end of the loan term, you get your money back — most of it anyway; they keep a small fee for their trouble.
“But the upshot is that they report your monthly payments to the credit bureaus as if it’s an installment loan, and when the loan term expires and you get your money back, they report the loan as ‘paid in full.’”
4. Open a Store Credit Card
The first step Bates took to build a positive credit history was opening a credit card with Macy’s. It had just a $100 limit, but it was what he needed to get the ball rolling.
“Using the card and paying it down every month jump-started my credit score to go up,” Bates tells Codetic.
Store cards tend to have looser requirements, so you have a better chance of being approved than with a traditional card. They also tend to come with higher interest rates and fees, so only spend what you’re able to repay each month to avoid accumulating debt.
5. Finance a Big-Ticket Item
Instead of applying for a loan or credit directly with a bank, you can often finance big purchases, like furniture or appliances, with the store. These are bonafide forms of credit and could show up on your credit report. To be sure, ask the lender which bureaus it reports activity to.
Like store credit cards, retailer financing may come with a low barrier but also high costs. The smartest way to use this to build your credit is to save up the money to purchase the item, then use those savings to pay it off before the typical 0%-interest period ends.
6. Use a Cosigner for a Credit Card or Loan
A cosigner with good credit could help you qualify for your first credit card or loan. By cosigning, they accept equal responsibility for the debt, so the lender doesn’t have to rely on your (non-existent) history alone.
The debt and activity on the account affects a cosigner’s credit report the same way it does yours, so keep up with payments for both parties’ sake.
7. Report Rent and Utility Payments
Credit reporting agencies don’t automatically track rent and utility payments, which is a bummer, because these are often a great indicator of your financial responsibility at a young age!
Some clever companies have figured that out, though, and they’ll pull info from your rental and utility accounts to report to the bureaus.
NerdWallet lists 10 rent-reporting services: Esusu and Zingo, which are free; plus paid services Rent Reporters, Rental Kharma, RentTrack, Rock the Score, ClearNow, Pay Your Rent, eRentPayment and CreditMyRent.
8. Set up Overdraft Protection With Your Bank
When I was in college, my university-focused credit union set up overdraft protection as a line of credit with my new checking account. Boy, is that a godsend. It’s also great for building credit if you stay on top of it.
Unlike the “overdraft protection” most checking accounts offer, where you get to take your balance below $0 and pay a bajillion dollars in fees, this line of credit covers your overdrawn balance to its limit, usually with 0% interest, and you repay it with deposits into your account.
Functionally, it’s a no-fee overdraft. But because it’s actually a line of credit, it can contribute to your credit history. Ask your institution whether it offers this kind of protection and whether it reports the line to credit bureaus.
9. Use Your Credit Responsibly
Once you’ve obtained your first credit, I don’t need to tell you to be careful about borrowing too much and making your payments on time. But I’ll point out some things new borrowers often get wrong about credit:
- Don’t use all your available credit. Your credit utilization — the percentage of your credit limit you use — is huge for your credit score. Keep it below 30% for the best results.
- Don’t apply for or open tons of credit cards at once. Having multiple cards can be good for your credit utilization, but opening multiple accounts in a short period raises a red flag on your credit report.
- Don’t carry a balance! Keeping a balance on your credit card from month to month does not help your score; it only increases your debt with interest.
“Once you’ve established a track record with your secured credit card,” says Victor Fong, a CPA and licensed insolvency trustee in Toronto, Canada, “you’ll be getting offers from credit card and loan companies.” Compare offers to find the good ones to boost your credit limit, but be careful not to take on more than you can manage.
10. Monitor Your Credit Report
Keep an eye on your credit report as you build credit. Make sure your activity is being reported (it could take up to three months, in some cases, to show up). Checking your credit report once a month or so will also help you watch out for identity theft that could damage your credit history.
11. Pay Attention to Your Student Loan Debt
Taking out student loans will earn you a credit history, too. The major benefit to most federal loans is they don’t lend to you based on your credit score; everyone gets the same interest rate, and loan amounts are based on need.
The drawback to student loans, even federal loans, is they’re often so much debt. You’re better off avoiding them if you don’t need them and building credit another way. If you use student loans to pay for school, however, managing the debt responsibly when payment comes due can boost your credit.
Can You Apply for New Credit With No Credit Score?
You can apply for credit cards, loans and financing with no credit score, but your options for getting a good deal will be limited.
Your best bet is to start early with some of the credit-building steps above.
If you don’t live in a magical rainbow land where you always make the most perfect financial decisions at the most perfect time while riding a unicorn to the calorie-free ice cream shop… you might not have that luxury.
You might need a mortgage this year or a credit card to bridge paychecks. You have options.
Getting a credit card with no credit score is probably the easier task. You can start with a secured card or become an authorized user, and your creditworthiness will likely get a quick boost. Within 12 months of responsible use with most secured cards, you’ll get a credit-limit boost.
To get a mortgage with no credit score, look into government programs created to support low-income and low-credit borrowers, or first-time homebuyers, including FHA loans and state-based first-time homebuyer programs. You could also apply with a creditworthy cosigner.
If you have a few months to prepare before applying for your mortgage, Davis of SparkRental suggests you take out a secured credit card and a credit-builder loan to get some activity on your account.
“It won’t take long to establish a credit history with both of those working simultaneously,” he says, “and buyers may qualify for a mortgage on their own within 12 months of opening those two accounts.”
Dana Sitar (@danasitar) has been writing and editing since 2011, covering personal finance, careers and digital media.