No Credit or Credit Score Same as Bad Credit

Good credit and a good credit score is an important facet of our lives whether it is used to buy a house, for employment screening, purchasing insurance or a whole host of other activities that often require a good credit history.  For some consumers though, credit is a burden and they prefer to exercise their use of cash and avoid credit. 

Since there are so many actions that require a credit score such as renting a car, purchasing things over the phone or the Internet, and even writing a check having no credit and no credit score can be a burden.

For these consumers, improving their credit score is not the problem, it is simply a matter of obtaining credit in order to have a credit score.  If you have no credit history, you have no track record of payment and you most likely will not have a credit score.  The unfortunate aspect of having no credit history and no credit score is that consumer is considered a credit risk.

Lenders use credit scores to help them determine whether someone is an acceptable credit risk for new credit or whether a creditor will increase or decrease an existing line of credit or even the likelihood that a customer will file for bankruptcy.  Creditors are reviewing a credit profile to see a history of how that consumer handles debt.  The review of an individual’s credit history may involve reviewing total outstanding debts, minimum monthly payments, even account credit limits.  If there is no credit history and no credit score upon which to make a decision, a decision to extend credit is regarded as a risk by most lenders and creditors.

In fact, the automated underwriting approval systems developed by FNMA and FHLMC used for the vast majority of home loan approvals will not approve a loan request in which the borrower does not have a credit score.

There are some things you can do to improve your credit even when your financial situation has turned sour and there are ways to build a credit profile and credit score when there is no credit score to start with.  The first issue someone may have when there is no credit score compiled with their credit report, may be that there is a mistake on their credit report.

Credit scores are dependent on the credit reporting agency that the score is based on.  The three major credit reporting agencies in the US are Trans Union, Experian and Equifax.  Each one of these credit reporting agencies will have a different score for the same consumer since the data in each of the three different credit reporting agencies on which the score is based will generally have slightly different information. 

If a consumer finds they do not have a credit score it may be the result of the score being based on data from just one credit reporting agency.  It may be that credit histories for accounts paid on time are missing from this credit report or is only recorded in one or two credit reports.

For credit histories that are only in one of the credit reporting agencies files, ask the other agencies to add the data.  Send a copy of the statement and the credit report that includes all of the accounts if you can.

If it appears more than one credit report or all of the big three credit agencies are missing accounts that are paid on time, ask the credit reporting agency that these accounts be added to the report.  Send the credit bureaus a recent account statement and copies of canceled checks if needed, reflecting the account and payment history.  The credit bureau doesn’t have to add account information, but if it is a verifiable account they often will add the data.

A final step is to quickly develop a credit history.  A credit card is one of the fastest and easiest methods to build a credit history.  Credit cards can be obtained for consumers that have no credit and previous bad credit.  Some secure credit cards come with a guaranteed approval with just minimal conditions, none of which include credit verification.  It is important to use the credit card to obtain a payment history, though the payments can be made within the grace period to avoid finance charges.

Other loans such as secured loans at a bank, major department store credit cards even certain utility bills will work to establish a credit history as long as the bank or utility company reports the accounts to the credit bureaus.

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