What It Means to Have No Credit

Learning how to improve your credit can be important to the homebuying process. Often, you’ll find information addressing how to build low credit, but we want to highlight what it means to have no credit. We’ll be focusing on ways that you can get a positive start on building your credit score.

Though there is some overlap between low credit and no credit – there are also differences in what it means to try to be considered for any type of loan. So, if you’re reading this and you aren’t sure where to start – let’s unpack it together!

What does it look like to have no credit?

Having no credit is kind of like having no grades in school. You might be very smart, but without some system of proof, teachers will have a hard time measuring that. That’s why testing exists, not because it’s the only way to show intelligence, but because it’s a way to track success numerically.

Similarly, you may have a substantial amount of money in savings and pay on time, but without a FICO® score, it can limit the lender’s ability to review how risky it would be to lend to you.

This can be frustrating because often people choose to pay with cash to avoid debt. That can be a great, responsible way to be, but again lenders typically must have some type of track record. The good thing is you don’t start at zero – you start with no number at all, so the best thing you can do to start building a credit score is begin.

When and how does having no credit impact you?

Having no credit will likely not impact you as far as everyday purchases. Also, if you purchase cars (or higher priced items) with cash, you’ll avoid it for the most part.

However, once you enter the world of financing and loans – credit is the language lenders speak. This is because lenders are allowing you to borrow money to complete the purchase, then you can pay it back over time – this makes owning a high-priced item possible for someone who can’t pay the full price upfront.

Having no credit can also make it harder when you’re shopping for a home, and if you are approved for a home loan may result in you getting a higher interest rate.

How long does it usually take to build credit from nothing?

Traditionally, it takes about six months of credit activity in order to generate a FICO® credit score. Keep in mind you may show credit movement within a month, but the score takes time.

Also, it’s important to keep a healthy expectation. Six months is the time it takes to begin a score – that doesn’t mean it will be high. You’ll have to build, be patient and pay on time.

How do you start building credit?

There are tons of ways to start building credit. We’re only focusing on a few. Check out these credit builder options for more! Just remember, Vanderbilt is not a financial advisor, so please consult a professional for help building your credit.

• Secured credit cards make the top of the list every time for people wanting to start building credit. They are secured by a cash deposit. When you open an account, you deposit an amount and that amount becomes your limit on the card.

• Becoming an authorized user to a trusted person’s account can be a quick way to start generating credit. But it shouldn’t be taken lightly. You inherit that person’s highs and lows and you may become responsible for the obligations of the account.

We hope that this has helped you understand a little bit more behind what it means to have no credit. It can feel easy to dismiss credit until you enter homeownership, but due to the time it takes, it’s always helpful to start building credit well before you need a loan. Just remember to start simple, do your research, ask questions and keep your payments organized. You got this!

Learn More About Homeownership!