Not having a credit score is not the same as having bad credit. But the only way to build a credit history is to use credit.
Top reasons you may not have a credit score
- Limited credit history: If you're new to credit or haven't used credit in a while, you may not have enough credit history to generate a score. The credit scoring formula needs at least 6 months of recent payment history in order to calculate a score.
- No credit accounts: If you've never opened a credit account, such as a credit card or loan, you won't have a credit score.
- Inactive credit accounts: If you haven't used your credit accounts in a while, your credit score may be inactive, which means that your credit history is not recent enough to generate a score.
- Fraud alert or credit freeze: If you've placed a fraud alert or credit freeze on your credit report, this can prevent credit bureaus from generating a credit score.
- Error in credit report: If there's credit report errors, such as a misspelled name or incorrect social security number, this can prevent a credit score from being generated.
How to build a credit history
1. Unsecured Credit Cards
Open a new credit card account. You may not get the best APR (annual percentage rate) or a high credit limit because you have little or no credit history. However, if you charge gas, groceries and things you would normally purchase and pay off the balance each month, you won’t be paying interest each month so the high APR won’t affect your bottom line. Credit limits will increase once a good credit score is established.
2. Secured Credit Cards
You may have to get a specifically designed credit card for no credit score. Most secured credit cards pull a credit report as part of the application card process. But when you have no credit score, a secured card like the OpenSky® Secured Visa® Credit Card does not require a credit score.
Your bank or local credit union may offer secured credit cards also, however they may require a minimum credit score to get approved.
Secured credit cards can help establish a positive credit history if the bank or credit union reports the account to the major credit bureaus.
Once you have established a good payment history for about 9 months with your secured card you will be able to apply for unsecured credit cards.
3. Use the Extra Debit card to build credit
The Extra debit card is a type of financial product that allows individuals to build their credit history while using a debit card. The Extra debit card offers a credit building service that reports the cardholder's debit card transactions to Experian and TransUnion credit bureaus. There is an annual fee associated with the Extra debit card based on whether you want debit card rewards:
- For Credit Building only – $149 per year or $20 a month
- For Credit Building & Rewards: – $199 per year or $25 a month
4. Demonstrate you manage credit wisely
Building credit means consistently demonstrating your ability to pay back any money you borrow. Only charge purchases that you can afford to pay off in full every month. That way you stay out of trouble if a financial crisis occurs. But be sure to use your card. It’s not enough to open a credit card and let it sit in your wallet. If you don’t use your credit card, you’re not demonstrating anything. Use your card at least once a month for small purchases like gas or groceries.
5. Pay on time every month
The most important thing you can do to build and maintain a good credit score is paying all of your bills and debt obligations on time every month. ALWAYS make all payments on time. This applies to credit cards, loans, mortgages, everything. Just one late payment can significantly damage your credit score.
6. Avoid applying for numerous accounts
Each time you apply for a credit card or loan, your credit score decreases a small amount. Only apply for 1 or 2 cards because there’s no point to chipping away at a credit score you’re trying to build up, especially when you haven’t yet demonstrated that you can handle just one credit card. Hard credit inquiries can take up to 10 points off your score.
7. Treat a secured card like an unsecured card and maintain low balances
Keep credit card debt low. Use your card regularly, but don’t spend money you don’t have. Stay well under your credit limit. You’ll be scored favorably if you keep below 30% of your total credit limit. Even though you are required to put down a security deposit, a secured credit card is just like a “regular,” or unsecured credit card.
Your credit limit is often the amount of your security deposit. Your purchases are not deducted from your security deposit. Therefore, each time you charge something, you are effectively borrowing money from the credit card company and are obligated to repay that debt. As a result, how responsibly you use a secured credit card will affect your credit score – both positively and negatively.
8. Get a cosigner
There is a way to bypass a secured credit card and go straight to an unsecured credit card. You'll need a cosigner. But keep in mind your cosigner’s credit will be damaged if you don’t use your card responsibly. Always pay on-time and never max out an unsecured or secured credit card.
9. Purchase a Tradeline
If you can't find a co-signer there are reputable tradeline companies that sell access to positive credit histories. Credit tradeline companies typically have established relationships with individuals who have well-managed credit accounts. They offer authorized user spots on these accounts to individuals seeking to add positive payment history and improve their credit scores. When a person becomes an authorized user on a tradeline, the account's payment history and credit utilization are reflected on their credit report, potentially boosting their creditworthiness.
10. Authorized user account
An authorized user on a credit account, such as a credit card, allows you to build credit quickly. The payment history of the credit account will be reported on the authorized user's credit report. If the primary account holder consistently makes on-time payments, it can help establish a positive payment history for the authorized user.