The problem with a credit history is that no one wants to give you any credit until you have an established credit history, but it takes credit to be able to build up that history. It’s a chicken and the egg problem.
You should begin your efforts toward a better score by getting a free credit score, setting some goals for yourself and tracking your progress with them.
Got the Score
Just because you have never used credit before, that doesn’t mean that your credit score is zero. You may just have an invisible score, as in it does not exist.
Building up your credit from there is a different problem than it would be for someone who has credit in the past and abused it and tanked their score. You have to become visible by building credit. This ensures that credit reporting agencies will pick up your efforts and start giving you a credit score. Once you get a good score, you can start becoming eligible for a host of financial services.
Your Score Starting Point
VantageScore is a major credit rating system that begins at 3.0. FICO is the other major one, and it begins at 300 and goes as high as 850. Just because you have never had credit before, that doesn’t mean you will start at zero when you show up on the scale. You also don’t start at the lowest rating, the 300 score. Since you have not had any credit before, you haven’t made any of the mistakes that can
hurt your score.
You can compare this to a pop quiz in school. If you missed the first quiz of the year to a doctor’s appointment, then you performed differently than if you came to class and missed all the questions. Your teacher will grade you differently in each situation, and typically your teacher will wait until there is some data to grade you.
If you don’t have a credit history, then the bureaus that report your credit simply don’t have enough information about you to know what kind of borrower you are.
Your credit score is simply an estimation of how likely you are to pay back money you borrowed based on past behavior. Without any past behavior to go by, however, you are a blank slate.
The score you get when you first start establishing one will be dependent on a few factors: how you use the credit you are given, how long you have been making use of it and how many different types of credit you have. The score won’t begin at the top, but it won’t begin at the bottom either.
Getting Some Credit
To begin developing a credit history, you have to start by asking for credit. You can apply for credit with lenders who are protected from risk, such as those offering secured credit cards or credit-builder loans.
Be sure to get a credit report first before you apply for any credit. If you have never used credit before, but you do have a file, then that should stand out to you as a warning sign. It’s possible that your information got mixed up with another person’s or that your identity is being used by someone else. If you see errors, then you need to dispute them and get them taken off your record.
At the time you are approved for your credit, you need to follow some simple guidelines. Start by paying your bills on time every time. Also, make sure you only use a small bit of your available credit. Keep all of your balances under the 30% mark and try to mix up your credit types. If you can get a credit card, an auto loan and other types of credit, it will really help your score.
If you can stick to these guidelines, your score will improve in no time at all. You’ll be able to enjoy a higher score that benefits you by giving you access to lower rates and more financial opportunities.
Don’t Worry about Numbers Too Much
It was possible in the past to have a credit score of zero, and that was considered the best score. This was called the National Risk Score, and it ranged from 0-1,300.
This system was set up to determine your risk of filing for bankruptcy, and the lower your score was the better it was considered. The opposite is true of today’s scoring systems, with a higher score being deemed the better one.
Credit experts will tell you that you don’t need to get hung up too much on your actual score. Your score changes constantly, and every time someone asks for a new credit score on you, the score is recalculated to take into account the newest information.
If no one is looking at your score, then it doesn’t matter right then, and you have time to improve it. It’s best to focus more on your general risk and try to stay within a certain range. Here are the ranges credit scores make up:
- 300-629 is considered bad credit
- 630-689 is known as fair credit
- 690-719 would be considered good credit, and
- 720 and higher is excellent credit.
If you can pay your bills on time and try to keep all your balances as low as possible, then your score will look good no matter what scoring model the lender is using.
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