Why Your Credit Score Is 0 Or Doesn’t Exist And What That Means
We have all heard that having a good credit score is important but what does it mean if you have a credit score of zero or no credit score at all?
Having a credit score of 0 or no credit at all is no reason to panic. All that it means is you’ve never had the opportunity to build credit by borrowing money and paying it back on time. You’ve never had a credit card, auto loan, or home mortgage which all give you a chance to build your credit score.
It is actually impossible to have a credit score of 0. When you do a search for your score on a site like Credit Karma if nothing comes up, it doesn’t mean your score is 0. It just means there is no history to report.
Credit scores range from 300-850. Your credit score is based on the risk of not paying your debts. The lower risk you are, the higher your score. The only way to assess that risk is by your previous activity so you have to get started. When you borrow money, your score doesn’t automatically start at 0 and build up. It actually doesn’t even start at 300. In most cases, it starts around 650 and goes up or down from there.
This doesn’t take away from the importance of starting to build your credit. Delaying this process is going to cost you a large amount of money in the future or even delay your ability to buy a home or car.
So why should you care and how do you start building up your credit score from 0?
Why You Should Care About Your Credit Score
Your credit score is something you usually don’t think about until you go to make your first big purchase like a car or house and realize how important it is. It’s too late to do anything about it at that point. Since the 2008 market crash, your credit has become a heavily weighed factor when qualifying for a loan.
Banks have become more strict on loan requirements and now even getting an apartment or renting a house may require a credit check. Knowing your credit history and doing everything you can right now to get your score as high as possible will save you tens of thousands of dollars in the future.
When discussing credit, there are two topics that come up; the credit report, which is your full financial story and the summary of your financial story, or your credit score.
If you want to learn more about what goes into your credit and how to check it here are some resources that will lead you down the right path:
- Save Yourself Thousands by Understanding Your Credit Score
- Is a 680, 700, or 720 Credit Score Good? What’s the Difference?
The key takeaway is that building your score will take 6 months or more. Building your credit score is an investment in yourself so how do you start building it?
How To Start Building Your Credit Score From 0
There are many ways out there to build your credit but you have to watch out for scams. If you see an advertisement that promises to improve your credit score fast, in a week or even worse, overnight then run the opposite way. Here are 3 legitimate ways you can build your credit score.
1) Open A Credit Card
The simple and easiest way to start building your credit score from 0 is to open up a credit card. Credit cards get a bad rep and that is because most people don’t know how to manage them. Credit cards aren’t free money.
Because the money isn’t free (obviously) you are borrowing that money. When you pay off your statement balance at the end of the month, you are repaying that debt.
When you do this every month, without incurring late fees, you build credit.
This process ties into the golden rule of credit cards and one you must not ever break:
Pay off the full amount of your statement balance on your credit card or charge card every single month with no exceptions.
Buying a home or a car with 0 credit is hard, if not impossible. Additionally, the interest rate that the bank will issue you on your loan will be extremely high. Thus costing you thousands of dollars extra.
If you have the self-discipline of using a credit card responsibly and follow the golden rule, there is no reason you shouldn’t open one to build your credit. If you need suggestions on a good starter card then check out Credit Cards For a 600, 700, 750, and 800 Credit Score.
2) Get Added As An Authorized User
Some people I’ve worked with in the past have been rejected by credit card companies. This is due to the companies not wanting to take on the risk of someone with no credit. It’s uncommon but it does happen.
Your alternative is to have someone add you as an authorized user on their credit card. Now, I would not suggest you ask your best friend or someone you aren’t married to. Instead, ask a parent or guardian. Explain to them why you want to be added.
Another positive to come out of this, besides building up your credit score, is you’ll have an accountability partner on your spending.
That’s a win-win.
3) In-Store Financing
Your last option and one that I’m becoming more of a fan of recently is in-store financing. It’s common to see this at many types of stores but for this example, we’ll use a furniture store.
If the store is offering 0% financing over 6 months or more and you have no credit then consider taking this option.
The kicker is you need to be sure you can pay off that purchase at any time in cash. It is never a good idea to buy something you can’t afford. If you use in-store in financing on something you can’t pay for, then you aren’t building your credit.
You’re ruining it.
Use this option as a last resort when building your credit score from 0.
The Bottom Line
Starting out building your credit score from 0 or nothing may seem like an annoying task that you don’t need to worry about. I would argue the opposite and insist you invest the time and patience now.
By doing so, you are going to increase your chances of getting approved for a mortgage or car loan considerably. In addition, the rates you will be paying on that borrowed money are going to be much more favorable for you.
Invest the time now and your future self will thank you.
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