Your credit score plays a big role in your ability to borrow money, whether it’s in the form of a credit card, mortgage, or car loan. A higher credit score indicates that you are good at managing your debts and making payments on time. But when lenders see a lower credit score, they often shy away from approving applicants because a lower score can be associated with a history of late payments and carrying too much debt overall.
But what if you have no credit score at all? If so, you’re not alone. An estimated 45 million Americans had no credit score in 2022, according to the U.S. Government Accountability Office.
Now you might assume that not having a credit score is not a problem if you have no plans to borrow money. But there is more to the story than that.
Why You Still Need a Credit Score Even If You Can’t Handle Being in Debt
Some people hate the idea of being in debt and will do anything to avoid it. Although it is difficult to buy a house with cash instead of financing a house with a mortgage, it is technically possible. And you can pay all your bills and other monthly expenses with cash, debit card or check instead of having to use a credit card.
If you believe that all debt is bad and that you would rather live a debt-free life, then you may not be motivated to establish a credit history and get a credit score. But not having a credit score can harm you in more ways than expected.
For starters, getting approved to rent a home without a credit score can be difficult. A landlord will usually not just take your word for it that you are good at paying on time.
If you don’t have a credit score, you may also need to make a down payment (or a larger down payment) when you sign up for utilities. And it can also be difficult to conclude a mobile service contract.
Finally, in many states, insurance companies may consider credit scores when setting premium rates. Applicants without a credit score are at risk of paying higher premiums for products such as homeowners, auto and life insurance.
How to get a credit score
If you have no credit score at all, this could be a problem for you. So it’s worth taking steps to establish a credit score, even if you don’t plan to use it to borrow money.
One route is to be added as an authorized user to a family member’s credit card account. But that is not an option for everyone.
In that case, it might pay to apply for a credit card, put a small recurring fee on it, and pay that bill on time and in full every month. You can do this with a regular credit card, or with a secured credit card where you make a deposit that serves as a credit limit. If you don’t have a credit score, you may need to start with a secured credit card before being approved for a traditional credit card.
Of course, you may also want to remind yourself that debt isn’t automatically a bad thing. Credit cards tend to get a bad rap because they are notorious for charging large amounts of interest. But you won’t pay interest on credit card balances that you pay off in full each month.
If you’ve managed to get by with no credit score and no borrowing money, chances are you’re good at managing your paycheck. That makes a credit card a potentially less risky prospect for you.
Moreover, there are advantages to using a credit card. In addition to building a credit history and establishing a score for yourself, you can be rewarded in the form of cash back on your purchases. Click here for a list of the best cash back credit cards.
There are people who manage to function without a credit score. But there are pitfalls you may encounter if you have no credit history at all. So it’s worth trying to build a credit score for yourself, even if you choose not to borrow money once you have one.