Introduction
Credit is the ability to obtain goods or services before paying for them, with the promise to pay in the future. Being “credit-free” means that you do not have an established history of borrowing money and repaying it. Having credit is important for adults. If you want to obtain your first credit card or loan, you need to have at least a fair credit score, although excellent credit is, of course, the best.
How You End Up Without a Credit Score
No one is born with credit. In fact, you will not have a credit score at all until you have had at least one credit account in the past six months. This is why most teenagers and young adults do not have any credit at all. Unless your parents made you an authorized user or joint on their bank account when you were younger, you will not have a credit history and therefore will not have any credit.
Note:
It is possible to have bills that you pay monthly and still not have a credit score.
Not all companies you pay report monthly to credit bureaus, which is why when you start to build credit, there are certain things you should know about credit bureaus. For example, utility services, mobile phone accounts, and gym memberships are not reported to credit bureaus and will not help you build a good credit score.
Not having a credit score is not necessarily a bad thing. Your credit score, whether good, nonexistent, or bad, is not an indicator of your economic status or financial health. You can have a high salary and still not have any credit, especially if you always pay cash and have not had a credit card, loan, or late bill.
The Difference Between No Credit and Bad Credit
Note:
No credit is not the same as bad credit.
Bad Credit:
When you have bad credit, it means that you have borrowed money before without repaying the amount as agreed. Because of that, banks will be hesitant to give you a credit card or loan.
No Credit:
When you have no credit, you are facing almost the same risk, as banks cannot see a credit history to predict whether you will be able to repay your loan on time. Banks want to ensure that they are granting credit to someone who is likely to repay them on time.
When you have no credit, you may find that you are denied credit cards, loans, and other services that require a credit check. There are many reasons that could lead to your denial for a credit card. You may be able to get approved for some services, but you will have to pay a security deposit or even have someone co-sign with you.
How to Start Building Credit
When you have no credit, your applications are likely to be approved more than when you have bad credit. However, it may still be challenging. If you are under 21, you are required to include your income or have someone co-sign with you to get approved for a credit card.
You can start building credit without a credit card, but this means that you will need to obtain a loan to build credit. If you have student loans that you have started repaying or will start repaying soon, these loans can help you begin building a credit history. You can also ask one of your parents to add you as an authorized user on one of their credit cards. Their account history can help you qualify for credit on your own.
Do you
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editing process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.
Consumer Financial Protection Bureau. “How long after getting a first credit account will a credit score be created?”
Consumer Financial Protection Bureau. “Can a card issuer consider my age when deciding whether to give me a credit card?”
Source: https://www.thebalancemoney.com/what-it-means-to-have-no-credit-960183
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