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The Trap of No Credit: Is It Worse Than Bad Credit?
Your credit score can pose a financial dilemma. Having bad credit means you have a credit record, but you’ve made some mistakes and it doesn’t look good. Having no credit means you do not have an existing credit record. If you fall into the latter category, it means that creditors have no way to predict how viable a candidate you are for credit.
According to the Consumer Financial Protection Bureau, 26 million U.S. adults have no credit history, which makes them “credit invisible.” This means they may be unable to get credit in the future.
Why is Credit Important for Your Financial Wellness?
Your credit score offers a financial picture to prospective lenders. It allows them to assess how likely you are to pay back any money that you have borrowed, thus indicating whether you are a reliable borrower or whether you pose a risk to lenders.
Most individuals have a credit score — hopefully it’s a good credit score. However, if you are credit invisible, this can hurt your future financial wellness, because it means that lenders are unlikely to approve you for credit. This aspect of personal finance should be monitored closely.
Why Am I Financially Invisible?
On the good side, if you are a member of the financially invisible, it means that you do not have bad credit. However, having no credit score can prevent you from taking advantage of financial opportunities. This is because your credit rating reflects your ability to adequately manage debt, and without this, lenders will not want to deal with you.
You may be credit invisible for one of several reasons, such as:
- You’ve never had a credit account: If you’re new to the credit game and you’ve never had a loan or credit card, you will not have accrued a credit score because you have no credit history.
- You have a new credit account: You may have acquired a credit card within the past few months, but a few months isn’t long enough for you to develop a credit score. Typically, you need to have an account that’s been active for at least six months for it to show on your FICO score.
- You have unused accounts: You may have several credit accounts, but you haven’t used them very much in the past few months. Although you have a credit history, this can eliminate your score if you don’t use your credit cards regularly. Once you begin using them again, you will begin to reestablish your credit score.
How Does Not Having Credit Affect My Life?
Not having an established credit score can harm your life in several ways. For example:
- Getting a mortgage: While having the financial resources to pay for a home without taking out a loan may be a reality for a small number of people, for the majority, it is not a viable option. You are most likely going to need a mortgage, particularly when you are buying your first home. Your credit history will be the main factor on whether lenders will consider you a good candidate for a mortgage.
- Leasing a home: You may not be ready to purchase a home yet, and you may wish to rent a house or apartment. Your credit score can also influence whether landlords are willing to let your sign a tenancy agreement. Many U.S. landlords consider the results of a credit check to be a major factor when considering a lease application.
- Buying a car: Just like buying a home, if you don’t have the cash to pay for a car, you’re going to need credit. Auto lenders will always check your credit score before offering you a car loan. If you have no credit history, it can be incredibly difficult to finance a vehicle loan.
- Getting insurance: In some U.S. states, not having a credit score can affect your ability to obtain health and life insurance. Insurance scores are developed to allow insurance to assess whether you can manage your possessions responsibly and how likely you are to file insurance claims. If you are credit invisible, you may have to pay a higher rate for insurance coverage.
- Getting a job: In some cases, employers review job applicant’s credit scores. This is particularly common in positions which involves the employee handling money. Having no credit history could cost you the job you need.
How Can I Gain Credit Visibility?
It’s not difficult to build a credit history and make yourself visible, but it’s important to know the right ways to obtain and handle credit. You should always avoid borrowing money from predatory lenders. This type of loan is difficult to repay, and you can end up with a poor credit score before you’ve had a chance to build a healthy record— this form of borrowed money is intended to trap you in a debt cycle. Here are some safe ways to get started.
- Apply for a secured credit card: To get a secured credit card you will need to put down a security deposit. You will then be given a line of credit equal to that deposit.
- Get a retail store card: Many retail stores will approve your application even if you have no credit. If you pay your card off regularly, you will soon begin to build a credit score.
- Get a credit builder loan: This type of loan is usually available from online lenders and credit unions. The loan will be deposited into your bank account and you’ll repay it through regular monthly installments.
Whichever ways you use to begin building your credit score, always remember to handle your debt responsibly. Do not take out too many lines of credit, and make sure that you always make your payments on time. Failing to do so can very quickly turn your No Credit score into a bad credit score. Check your credit score regularly to see how you are doing.
How True Connect Can Help
If you’re looking for a loan and you don’t have a credit score, True Connect may be able to help. TrueConnect offers an innovative loan solution that doesn’t require a credit score. This can help employees who do not have a credit score but who may need an emergency loan to help with unexpected expenses, such as:
- Emergency medical bills
- Rent, mortgage, or car payments
- Car repair
- Home repair
Eligible employers can offer TrueConnect loans to their employees at no cost to them. This is a voluntary benefit to help employees with their personal finances.
Here’s how it works: Employees can borrow from an FDIC insured federal bank with repayments over the next twelve months by convenient payroll deduction. All of the payments are reported to the credit agencies to help you establish a credit history or repair a damaged credit history. Along with the benefits that come with the loan, all TrueConnect borrowers also get free Financial Choice financial counseling.
Don’t fall into the trap of credit invisibility. If you currently have no credit score, start building your credit responsibly so that your financial future will not be at stake. Remember, when you acquire a credit line, minimize your spending and always make your repayments on time. That way you will build a healthy credit score and not be stigmatized by a bad credit rating.