What Happens When You Have No Credit Score?
Having a credit score is often something most of us do not think about until we look to take out a loan. Having a good credit score is important if you want to secure great interest rates on your loan or credit card applications but what happens when you have no credit score? This is what I am going to talk about with you today. The implication is that some people would consider having no credit score to be worse than having a bad one. However, anyone who has had to contact a lawyer to dispute credit report findings may regard this statement with a degree of contempt.
What it means to have No Credit Score
You could make the connection that having no credit score is equal to having a bad credit score. But to clarify, bad credit is the result of mishandling credit and earning negative marks on your credit reports. So, if you have a history of missing payments, defaulting on loans or any other behaviours that will indicate to lenders that you are irresponsible with your credit, your credit score will reflect that.
On the other hand, no credit suggests that you have not had any recent credit activity that can be reported to relevant credit agencies so they cannot generate a credit score for you. No one actually has a credit score of zero, even if they have a terrible credit history. The FICO scoring model, for instance, ranges between 300 and 850. It is rare for anyone to have a score below 470. The vast majority of consumers have a FICO score of 470 or above. But if there is no history to report on you will not get a score.
If you do not have a credit it scores, it could be for a variety of reasons. One of the main reasons why is that you simply have not used credit facilities frequently enough to generate a consistent score for yourself. The other popular reason is that you are young and have not have the time to generate a credit score yet because you have previously been too young to take advantage of credit facilities.
Why does a Credit Score Matter?
Working on a positive credit score can have a wide variety of benefits to any future plans you might have. This is because those with high credit scores are seen as people who are trustworthy and reliable. Lenders believe they are making a smart bet when lending money to those with great credit scores, so they tend to make they more attractive offers, with lower interest rates. The lower risk associated with that person is exactly what lenders want. They do not want to risk making a big loss on their investment with a risker person with a lower credit score. So those that do offer credit options for those who have a bad credit history generally charge more because of this perceived risk.
You might even think to yourself, “so what, I do not want a loan anyway,” you might not want one now but in the future you might. What if you want to take out a loan to go on holiday? Perhaps do some home improvements? Maybe you need finance for a new car? How much you will be charged to borrow the money you want depends on that credit score.
What Should You Do if You Have No Credit?
If you have decided it is a good idea to get a credit score and you do not have one, do not worry. There are some things you could do. Opening a secured credit card would be smart bet for many without a credit history. This kind of borrowing allows you to use a little bit of credit and regularly pay it off. If you manage to do this consistently then you will develop a credit score.
There are also credit-builder loans that are a great option for those that want experience managing a lump sum loan over a credit card. But be sure to read the terms and conditions about how much interest you will be charged. These can be pricy.
To conclude, you will struggle to get the loans you might want in the future if you do not have a credit score. We all will have times in our lives where we need to borrow money so developing a healthy credit score now is important if you want to build towards future goals with the support of the appropriate loans and credit cards.