A lack of credit history, or no credit score, can make getting approval for a home or car loan just as difficult as it would be with a poor credit rating. There are ways to both work around a limited credit history and work on building a positive credit score for the future.
No Credit History vs. Bad Credit
A bad, or poor, credit score is a rating below 620 points. On the other hand, no credit history will result in a credit score of zero. Many people falsely believe that no credit score is better than a low credit rating, but this is not the case. Lenders and other creditors will be just as hesitant to offer approval to applicants with no credit history as they would be to applicants with poor credit scores. This can be attributed to the lack of proof available that you are a trustworthy applicant. Without any kind of credit history, lenders will not know what your financial habits look like. You could be the most responsible spender out there, but without a credit history to prove that, it can be hard to get financing.
Other Approval Considerations
Creditors can consider some other aspects of your personal history during the application process.
A consistent employment history can show lenders that you are a reliable and responsible applicant. More importantly, it shows that you are capable of maintaining a steady income that enables you to keep up with a payment schedule.
Your residence history can also provide lenders insight into your credit worthiness. If you have kept up a good rental history, live out the terms of leases you sign and show an ability to keep up residences long-term, this can help support a limited, or nonexistent, credit history.
A healthy bank account can also indicate to lenders that, even without a credit score, you are not a high-risk applicant. Savings and checking accounts with a maintained balance, lack of overdraft incidents and consistent usage can help counteract a limited credit history.
Building a Positive Credit Score
The only way to build a positive credit score is to use credit in a responsible way. Apply for loans or credit cards tailored to those with poor or no credit. Keep up with minimum monthly payments, use the credit you receive and keep all of your accounts healthy.
‘No credit score’ is when you have a credit history that is limited enough to not generate an informative score. Without a credit score, you may find it hard to get approval on financing you need in order to make large important purchases, like a new car.
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