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Topics addressed on August 1, 2012:
Qualifying for new credit when you don’t have any credit history
I have no credit score and am unable to get credit for a car loan. How do I get a credit score? I have my own apartment and am paying all utilities. Will that help? If so how long does it take, or where should I start?
Credit scores traditionally were calculated using the information from your credit report, so without a credit report you couldn't have a credit score. Traditional credit scores require that you have a credit account, such as a loan or credit card with a minimum of three to six months of payment history. For many people, that represented a classic catch 22 - you couldn't get credit without a credit score but you couldn't get a credit score without credit.
People who reliably pay their routine monthly non-credit bills are not building credit references in the form of a credit report, which locks them out of traditional, low cost credit and other financial resources. As a result they were forced to turn to other sources such as payday loans, car title loans or rent-to-own businesses, trapping them in a cycle of high cost debt.
But recent developments in scores used to assess creditworthiness are helping break that cycle.
Experian was the first credit reporting company to include positive rent payment information in its credit reports, helping those without credit establish a credit report for the first time. Not all rental data is reported to Experian, but the number of accounts is growing each month.
Even more recently, Experian introduced the Extended View score, which utilizes information from various public records and other sources beyond credit reports to help lenders determine lending risk.
When a person applies for credit but does not have a traditional credit history, the Extended View score provides an additional tool to help accurately identify them as a good credit risk, enabling them gain access to traditional, lower cost credit resources that are important to financial success. Hopefully, a auto finance company in your area will be willing to invest in this new service.
If these new services don’t help you, there are several ways to establish a credit history if you don’t have one.
You can become an authorized user or joint account holder on a friend or family member’s credit card account. Someone may cosign for you on a small loan that is reported by the lender. Or, you can open a secured credit card account with your bank or credit union.
Secured accounts are not always reported, but may be converted to a standard, unsecured account after a period of time. Confirm with the bank how they will report the account before you open it.
Once a credit report is established, use your account or accounts to make small charges periodically and then pay the balance in full. Doing so will help you build a positive credit history that eventually will be reflected in good credit scores.
Thanks for asking.
- The "Ask Experian" team