In some ways, having no credit score can be as bad as or even worse than having bad credit — and many of the side effects of no credit are the same for poor credit. Find out more about why you might not have a credit score, the issues that can cause and whether you can do anything to fix the situation.
Why Would You Have No Credit Score?
If you don’t have a credit score at all, it means there isn’t enough information in your credit history for the credit scoring models to calculate one. While it’s a complex topic, here’s a basic look at how credit scores are calculated to help you understand:
- Information about you is reported by businesses and lenders to the credit bureaus. That can include when you open certain types of accounts, the balances of your accounts, and whether you pay debts on time.
- Each credit bureau uses different scoring models. Those models take the information in your profile and apply an algorithm to determine your credit score. The two biggest names in credit scoring models are FICO and VantageScore.
- Each model needs a certain amount of information to create a score. FICO models require you have at least one open account that’s been reported to the credit bureau within the past 6 months and is at least 6 months old. Some VantageScore models don’t require as long of a credit history, which means you may have a score with these models before you can get a score with FICO models.
It’s common for young adults — those who are just turning 18 or leaving college — to have what’s called a thin credit file. This means you don’t have enough credit history to have a score or that you don’t have enough information in your file for a good credit score.
Other reasons you might have no credit score include:
- You’ve never taken on any type of debt or any debt that was reported to the credit bureaus
- You were out of the country for a period of years and haven’t had U.S.-based debt in a while
- You haven’t had debt of any kind in a while — eventually old debt information does age off your credit profiles
7 Side Effects of Thin Credit or No Credit
But what does all of that mean for someone who doesn’t have a credit score? Here are seven negative side effects that can come from having a thin credit file.
1. It Can Be Harder to Get a Loan
Many lenders rely on information in your credit profile and your credit score to qualify you for loan offers. Your credit score is a numeric reflection of your credit history. A higher score tends to indicate you’re someone who pays debts on time and as agreed, and that makes you a better risk for lenders. Because of this, some banks and other lenders won’t approve you for a loan without a credit score.
Not all loans require a credit score, and some lenders don’t even require a credit check. But without a credit score at all, your options can be limited.
2. It Can Be Harder to Get a Credit Card
The same is true for credit cards. While there are numerous credit card products designed for those with bad or no credit, they’re usually “credit building cards.” They start with small credit limits and don’t come with a ton of perks. To get higher credit limits and perks such as travel points, you typically need a decent credit score.
3. Debt May Be More Expensive
When you do get approved for debt, you may find yourself paying more for it if you don’t have a credit score. If lenders can’t access their risk in lending you money, they may charge more in fees and interest to make up for the unknown risk. This can increase how much you pay back over time — and in some cases, how much you have to pay on the debt every month.
4. You May Not Be Able to Rent a Car
Car rental companies heavily favor those with credit cards. If you don’t have a credit card with a high enough available balance to pay for a rental car, then you may need to use your debit card. Most car rental companies have extra rules and restrictions for those who use a debit card, including:
- Restrictions on the types of cars you can rent
- Extra temporary holds on your account — sometimes $500 or more above the rental cost
- A credit check that requires a minimum credit score
Without a credit score or a credit card, you could be left in the lurch when renting a car.
5. Insurance or Utilities Might Cost More
Even your car insurance or utilities could cost more if you don’t have a credit score. Many times, these companies run a credit check when setting up your account or quoting you premium amounts for insurance. Car insurance companies sometimes use credit as a factor to determine your risk as an insured driver. No credit score or a poor credit score could cause them to increase your premiums.
Utility companies actually give you service on credit. When you pay your bill, you’re paying for the energy, water or other services you used the previous month. If you don’t have a credit score, those companies might make you put up a deposit that can be used to cover the cost of those services if you don’t pay your bill later.
6. Your Housing Options Could Be Limited
Getting a mortgage without any type of established credit history and a credit score is all but impossible. But even if you’re just looking to rent, landlords often check your credit to understand whether you’re likely to pay your rent on time. With no credit score, you could be limited to landlords who are willing to take a chance on you.
7. You Could Miss Out on Job Opportunities
Some employers include credit checks as part of background checks for employment. This is most common in jobs that involve handling money or dealing with finances. If you apply for a job that requires a credit check and you don’t have a score, you might be at risk of losing out on the opportunity.
What Can You Do If You Have No Score?
You can start building your credit so you have a score in the future. Start with something small like a secured credit card or personal loan. Make sure you work with lenders that report to the credit bureaus — Wise Loan doesn’t require good credit for approval and reports to two of the major credit bureaus to help you build your credit profile.
If you’re in college or just getting out, take advantage of other options to boost your credit. Pay your student loans on time and consider products such as Experian Boost™, which lets you convert utility payments to trade lines on your credit report so you get credit for paying those bills on time.
Ready to start building credit? Consider applying for a Wise Loan today.