What Happens if You Have No Credit Score?
Believe it or not, everyone should have a credit score; even if it is as low as 300. It does not matter the state of someone’s credit or if they are in a bad situation or not. Those who don’t show a FICO score have not built up their credit standing yet. ‘No credit score’ is detrimental to your credit worthiness and financial standing. Let us take a look at the reasons why and find out what would happen, if your credit score shows little or no activity.
Once in a Blue Moon
All credit scores begin at 300 and go up to as much as 850. Of all consumers in the United States, only 1% hold a credit score that is below 470 as indicated by the FICO scientist, Tommy Lee. Even a 300 FICO score is very rare, according to the same principal scientist. If you have no credit score, here are some of the reasons you are one of the most unique persons on the planet:
Your name and financial information haven’t listed on any credit account
In a six month period, you have never utilized any type of credit
You haven't done a credit application or not added as an authorized user on an account
When it comes to no credit score, it means that your credit report shows inactivity for an extended period of time. It also means that your credit does not yet exist to generate a credit score. There has been no one with a zero credit score. However, if you don’t have a credit history, a score means nothing, especially if you want to take out a loan or apply for credit.
How Come Someone Doesn’t Have a Credit Score
Most people without a credit history may be young college students or someone just starting out in life and trying to build their financial standing. It could be an individual who may have used credit before, but over a period of time may not have done so. Therefore, the credit bureau may not have sufficient information recently generated.
In addition, there are some loan institutions that may not have been reporting your activity on a consistent basis to provide information to the credit bureaus. The credit bureaus rely on creditors to be consistent in their reporting. If you find that your credit report shows no credit score or credit history, it is best to check with your creditor, lender or financial institution and request that they do active and consistent reporting to the bureaus.
What Happens If You Don’t Have a Credit Score?
The credit bureaus are not going to be able to provide enough information about you to the lenders, if you have little or no credit history. Therefore, it is going to be very difficult to borrow money after you leave college, if you haven’t taken out a student loan. It is true that it will get worse, if you forfeit your student loans.
Most lenders or financial institutions use your credit report data to determine, if you will pay back the loan or not. If you follow the directives of apply for a loan or credit card and you pay those monthly bills on time, you can depend on the credit bureaus to accurately calculate your different credit scores. Your scores may not begin at the top, but you would be able to start somewhere.
The Lenders Determination
Most lenders do a score check and see the results as symbolic of your financial stability and responsibility. Therefore, your credit score is very important to determine if you will be approved and the interest rate that you will receive. Your credit score carries a lot of weight as you can see. Those who have higher scores tend to be treated more trustworthy as borrowers. Lenders will give the lowest rates of interest on auto loans, mortgages, credit cards and unsecured loans. It is hard for lenders to determine the financial risks with no credit history and score.
Poor Credit Standing
When you don’t have a credit score that lenders can look at and assess if you are qualified for a loan, you might as well have a poor credit standing. Lenders depend on your history of debt repayment to make a determination if you are a liability or not. In addition, your credit standing could affect other areas of your life. If you are in the process of renting an apartment, getting an account from a cell phone company, buying a new or used car or getting auto insurance or renter’s insurance, you will run into trouble. Your auto insurance premiums will be much higher. If you are asked to put down a deposit for security, it will be higher. The same is true for the utility companies.
Renting an Apartment
To lease an apartment, you need to show that you will pay the monthly rent. Many landlords will run your credit from the three credit bureaus. An approved rental application by a large property management company is dependent on your FICO scores. A smaller property management company may grant you credit and approve your rental application, if you pay a large security deposit. This is a great way to start building your credit history. However, you may have to do some heavy negotiations. First, it is best to show your cards or be upfront and honest about your situation. In so doing, you may receive some leniency from your potential landlord.
Seeking Employment
Many prospective employers also look at your credit history to find out if you have a sense of responsibility as it relates to your finances. They hope to determine your character and your trustworthiness.
If they find that you don’t have good credit standing or a desirable score, then it might affect your job application. However, some states have restrictions when it comes to companies doing credit checks as part of the pre-employment criteria. One thing to note is that whoever the company is, they won’t be able to see your FICO scores, but the information that is on your credit report. Not having a score is not a prerequisite to whether you get the job or not. That would be workplace discrimination of which you can file a lawsuit. Find out if the company that has your job application goes to lengths to want access to your credit report.
Obtaining Car Insurance
Many auto insurance companies consider credit when underwriting your policy. However, certain information is taken from the report and not from the actual score. Instead, you get an insurance score, which determines your monthly premium. Every insurance provider has different models of how they do this. Many of them will take a look at your past accident claims, if any, along with information on your credit report. This is how they calculate your insurance score.
Establishing An Account With Utility Companies
If you want a new cell phone account or you want to open up an account with your electric company, you will have your credit checked. However, each utility company thoroughly assesses your information, especially, if you have no score. There are utility companies that don’t use your score when making a decision while others might give you higher monthly premiums or service plans and a mandatory deposit, if you don’t show a history.
Mortgage Application
The underwriting process for a mortgage loan is quite rigorous and detailed. For that reason, many lenders put most of the emphasis on your credit score. There are some mortgage lenders who will accept bad credit or no credit, if you have a large down payment. In that case, you could pay a higher monthly mortgage loan payment. Some lenders also use other things to determine eligibility such as:
Utility bills
Monthly rent
Phone bill
Credit card bill
Secured loan and credit cards
Prior to applying for a mortgage, make sure you get your credit report from all 3 bureaus so you can know what it has on it. If you can, try to get things in order before putting in a mortgage application. You can do things like paying other bills on time and taking out a secured loan.
Building Credit
When your credit history shows little activity, it means you have nothing on your credit report to activate a credit score or earn you credit score status. It is recommended that you do things like take out a loan, apply for a credit card, or get a prepaid credit card. It is best to use these on a continued basis in order to build your credit. However, with no credit score, some companies won’t loan you money or approve your credit card application. So, the best way to stand out prior to approaching some of the prominent lenders or credit card companies is to establish credit first. You can do so by using a secured credit card or apply for a secured loan. If you are a renter, many landlords are now reporting payments to the credit bureaus. Be sure to pay all your bills on time and don’t borrow more than you can afford.
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College Students
If you are a college student with no credit history, you can build your credit by taking out student loans or applying for a credit card. While you may not get an unsecured credit card, you may get a secured one. However, most college students are qualified for student loans; depending on their full-time or part-time income.
Many college students obtain student loans regardless of their credit history, income and credit score. The reason for this is because they have to sign a mandatory promissory note to pay back the loan six months after graduation. The college student also has to do a loan entrance counseling to educate and inform them of the process and what to expect.
Throughout their college years, the student doesn’t have to pay back the loan, but if the loan is forfeited or defaulted after graduation, the Department of Education and lenders will report this to the credit bureau and choose wage garnishment to force repayment. It is best to communicate with the lenders if you are experiencing financial hardship.
Conclusion
Although you can survive without having a credit score, the financial system dictates that in order to be considered financially responsible, you must be credit worthy. You should work with each financial institution to help you to build that fiscal responsibility and you have to also be accountable in doing so.