Credit Scores and Why You May Not Have One
So, you want to buy a house, car, boat, or some other item that requires monthly payments. One of the first actions a lender will take will be to pull your credit report and look at your FICO credit score. Your approval and terms of the loan depend heavily on these numbers.
What if you don’t have a credit score?!?
Not having a credit score is not the end of the world, and about 50 million people fall into this category. There are several reasons why you may not have one.
- You are young. Jennifer just graduated from college. She has no credit cards and her car loan is in her parents’ name. She does not have a credit file, so she has no credit score.
- You have always paid in cash. David subscribes to the policy that if you cannot pay for it, you don’t need it. He has always paid cash for his cars, he rents an apartment, and he doesn’t use credit cards. The bureaus would have no record of David, and he would not have a credit score.
- You paid off all your loans last year. This is frustrating but true. If you have paid off your car, house, and credit cards and live a life of no debt (sigh, you are so fortunate), then your credit report would not be updated with any new information. Because of this, you may no longer have a credit score.
- You are dead. Ok, I added this one to see if you were paying attention. However, sometimes a creditor will report you as deceased, and this wipes out your credit score. This can happen in situations where a person is an authorized user, or co-borrower with another person, and the other person on the account dies. The creditor may report to the bureaus that the owner of the account is deceased. As a result, you would show as deceased, and you would not have a credit score.
If you are one of the millions of people who do not have a credit score, there are steps you can take to build your credit file which will generate a score.
Open a credit card. This is a great way to begin building your credit. By opening a credit card and using it monthly, the creditor will report this usage to the bureaus. They will start a credit file on you and collect your payment habits. After about 6 months, there will be enough information available to generate a credit score for you.
Be an authorized user. Your parents, spouse, siblings, or friends can add you to one or more of their accounts as an authorized user. This allows you to take advantage of the credit history that they have built up on the account. An authorized user status will help generate a credit score faster than opening a credit card on your own. HOWEVER; make sure that the account is in good standing (no late pays, balance is low), or the resulting credit score will not be great.
Break out the unused credit cards. If you are debt-free, you can still use your credit cards every month or so and pay the balance off at the end of the month. In order to have a credit score, you must have one credit line that has updated within the last 6 months. This works even if you pay off the balance every month. So, charging dinner or a tank of gas every now and then will keep your score active and alive.
Go nationwide. Small community banks and credit unions may not report to all 3 credit bureaus. If you already have credit, do a little research on your creditors to see if they report to the bureaus. If not, then your credit line with them is not helping to build your credit score.
Check your credit. Pull your credit report at www.annualcreditreport.com to see what is showing up on your report, and if there are any errors. If an item is reporting incorrectly, or you are showing as deceased, get that corrected immediately.
Making sure you have a credit score takes a little effort. However, by taking these actions into consideration and implementing them into your financial life, you will be on your way to a great credit score!