How to Establish Credit If You’re Unscoreable

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Your credit reports are the basis for your credit scores—and credit scores allow lenders to evaluate your creditworthiness when you apply for a loan or credit card. But what if you don't have a credit score?

Credit scoring models analyze your credit report from one of the three major credit bureaus (Experian, TransUnion or Equifax) to generate a score. But if you don't have credit accounts, or there isn't any recent activity in your report, the scoring model might not have enough information to determine a score. As a result, you'll be unscoreable, but there are ways to build your credit regardless of not having a credit score.

Being unscoreable can make renting an apartment, getting a loan or opening a credit card more difficult. Fortunately, how to become scoreable isn't a secret. Read on to find out how you can build credit so you'll have a credit score lenders can use when you need to borrow money or open a credit card.

Minimum Requirements for a Credit Score

The requirements credit scoring models have to generate a credit score for you depend on the type of credit score. For FICO®'s credit scoring models, you need to have both of the following:

  • A credit account in your credit report that's at least six months old
  • Credit activity on a credit account during the previous six months

These don't need to be the same accounts. For example, if you pay off a loan, it can stay on your credit reports for up to ten years. If the loan was your only credit account and you paid it off over a year ago, however, then you won't be scoreable after six months because you won't have an account with recent activity. The good news: You could become scoreable again as soon as you open a new account.

VantageScore's credit scoring models don't require as much information as FICO: You'll be scoreable once you have an account with activity, even if the account has only been active for one month.

Three Ways to Become Scoreable

Taking out a loan or opening a credit card can be difficult if you don't have a credit score. Here are three methods you can use to get around the Catch-22 and become scoreable:

1. Open a secured credit card.

Secured cards help people with little or no credit history begin building credit. A secured credit card works like a regular credit card, except that you must pay a refundable security deposit to open your account. That deposit typically becomes your credit limit. You still have to pay your monthly bill, and it's important to pay all your bills on time to show a positive payment history on your credit report. The credit card issuer typically reports your account and payments to at least one of the three main credit bureaus.

A good way to build credit with your secured card without paying interest is to use it for one small purchase each month and then pay off the bill in full before the due date.

Banks, credit unions and credit card issuers offer secured credit cards. Be sure to compare your options, as some cards charge an annual fee or have high interest rates, while others offer rewards without any annual fees.

2. Take out a credit-builder loan.

A credit-builder loan is a secured loan that you can use to establish credit. Similar to a secured credit card, you'll need to give the lender a security deposit when you take out the loan.

With a credit-builder loan, you'll receive the loan amount after you've made fixed payments on the account until the end of the loan term. The lender will report your loan payments to the credit bureaus, which can help you build credit history. Once you pay off the loan, the lender will return your security deposit.

You can usually get credit-builder loans through a credit union, community bank or online lender (and typically not through a large financial institution). Generally, you'll have to pay interest on the loan you receive. But some lenders will place your security deposit in an interest-accruing account and return the full security deposit plus interest, which can help offset the interest you pay on the loan.

Another option may be a lending circle loan arranged by the nonprofit Mission Asset Fund. The peer loans are interest-free, and Mission Asset Fund reports your monthly payments to the credit bureaus, which can help build your credit.

3. Become an authorized user on someone else's credit card.

You could also ask a family member to add you as an authorized user on one of their credit cards. Depending on the issuer, the card's entire credit history might be reported to the credit bureaus under your name—which can jump-start your credit and make you immediately scoreable—or the issuer might start reporting the account's activity starting from when you became an authorized user.

When you become an authorized user, the card issuer may send you a credit card that's attached to the primary cardholder's account. However, the primary cardholder is legally is responsible for all the charges connected to the account. While you might have an arrangement to pay your portion of the bill, if the primary cardholder misses a payment, the late payment could be added to your credit reports as well.

Generally, it's best to only ask a relative who you know is responsible with money to add you as an authorized user. You also want to feel comfortable discussing finances and credit with the person.

Building Excellent Credit Over Time

While becoming scoreable is an important first step in building credit, credit scoring models consider how long you've been using credit and the average age of your accounts when calculating your credit scores. If your goal is to be in good or excellent credit score ranges, keep at least one open and active credit card. Only use a small portion of your available credit limit, pay your bill in full each month (to avoid interest) and make all your monthly payments on time. Also be sure you make any other loan payments on time every month.

You may also be able to improve your score by getting credit for your on-time utility and phone payments. With Experian Boost®ø, you give Experian permission to connect to your bank accounts, and once you verify that you want the accounts added to your credit file, you'll see your updated FICO® Score instantly.

While becoming scoreable and improving your credit score can take time, it can save you thousands of dollars in your lifetime, making it well worth the effort.