Does Everyone Have a Credit Score? And Why Not

A credit score is a three-digit number that helps lenders and creditors assess an individual’s financial reliability. This numerical representation predicts how likely someone is to repay borrowed money on time. Lenders use credit scores to make decisions regarding loan approvals, interest rates, and credit limits for products such as mortgages, auto loans, and credit cards. A higher score generally indicates a lower risk to lenders.

Not Everyone Has One

A credit score is not automatically assigned to every individual. Many people do not have a score due to limited or non-existent credit history within the formal financial system. This often includes new immigrants who haven’t established U.S. credit, or those who exclusively use cash or debit cards. Even past credit users may lack a score due to a lack of recent activity or closed accounts.

How Credit Scores Are Established

A credit score is established when credit activity is reported to major credit bureaus: Experian, Equifax, and TransUnion. Lenders provide information about account openings and payment activity to these bureaus. Common initial credit-building activities include opening a first credit card, often a secured card, or taking out a student or car loan. For a score to be calculated, there must be enough credit history and active accounts reported to the bureaus over at least six months.

Key Factors Influencing Your Credit Score

Once established, a credit score’s value is determined by several weighted factors. Payment history is the most impactful, accounting for 35% to 40% of a FICO or VantageScore. Consistent, on-time payments are important, as even a single payment 30 days or more overdue can significantly lower a score. Credit utilization, or the percentage of available credit used, is another significant factor, typically making up about 30% of the score. Lower utilization rates are generally more favorable.

The length of credit history contributes around 15% to the score, considering the age of all accounts. A longer history of responsible management is viewed positively. New credit, including recent applications and opened accounts, accounts for about 10% of the score; opening multiple new accounts quickly can temporarily lower it. Finally, the credit mix (e.g., credit cards and installment loans) makes up the remaining 10%. Managing different types of credit responsibly can be beneficial.

Accessing and Understanding Your Credit Score

Individuals can access their credit score through various sources, including credit card companies, banks, and free services. These scores are calculated using different scoring models, such as FICO and VantageScore, which may result in slight variations depending on the model. Most commonly used scoring models range from 300 to 850.

Scores are categorized into ranges to indicate credit quality. While exact ranges vary by model, a score of 670 to 739 is generally considered “good” for FICO Scores. Scores above this range are very good or excellent, while scores below may be fair or poor. A higher score can lead to more favorable loan terms.

Strategies for Building Credit

For individuals with little or no credit history, several strategies can help establish or improve a credit score. A secured credit card is a common starting point, requiring a refundable security deposit that serves as the credit limit. This deposit mitigates risk for the lender, making these cards accessible. Responsible use, including on-time payments and low balances, is reported to credit bureaus, building positive history.

Becoming an authorized user on another person’s credit card can also build credit. The authorized user benefits from the primary account holder’s positive payment history and low credit utilization, if reported to bureaus. However, poor account management by the primary user can negatively impact the authorized user’s score.

A credit-builder loan is another option: the loan amount is held by the lender while the borrower makes regular payments. Once repaid, funds are released, and on-time payments are reported, demonstrating responsible financial behavior.