Can you have a credit score of 0

If you have really bad credit or really good credit, you probably already know it. But there's that vast middle area where your score is too low to get the best offers. If you want to get a new credit card, take out a loan at the car dealership, get a mortgage to buy a house or borrow money for some other purpose, the quality of your credit score makes a serious difference.

With a bad score, few banks will take a chance on you; those that do will offer you their highest rates. A bad credit score can also increase your insurance rates or cause insurers to reject you altogether, and it can stand between you and the apartment you want to rent. Negative items in your credit report can even hurt your ability to get certain jobs. Even a mediocre score will jack up rates compared to those offered to people with excellent credit.

Let’s take a look at what is considered a bad credit score, how you might have gotten there and what you can do to fix it.

A bad credit score is a FICO score in the range of 300 to 620. Some score charts subdivide that range, and call “bad credit” a score of 300 to 550 and “subprime credit” a score of 550 to 620. Regardless of labeling, you’ll have trouble getting a good interest rate or getting a loan at all with a credit score of 620 or lower. In contrast, an excellent credit score falls in the 740 to 850 range.

Credit Behaviors That Hurt Your Score

Borrowers with bad credit usually have one of more of the following negative items on their credit reports:

FICO credit scores are based on five broad categories of borrowing behavior, some of which affect your score more than others.

Your payment history counts for 35% of your score, so missing your payment due dates seriously hurts your score. Being 31 days late is not as bad as being 120 days late, however, and being late is not as bad as failing to pay for so long that your creditor sends your account to collections, charges off your debt or agrees to settle your debt for less than you owe.

How much you owe relative to how much credit you have available is another major factor, accounting for 30% of your score. Say you have three credit cards, each with a $5,000 credit limit, and you’ve maxed them all out. Your credit utilization ratio is 100%. The scoring formula looks most favorably on borrowers whose ratio is 20% or lower.

Less important is the length of your credit history, which counts for 15% of your score. You don’t have much control over this component. Either your credit history stretches back several years or it doesn’t.

The number of new credit accounts you have counts for 10% of your score, which means that applying for new loans to move your debt around might hurt your score. On the other hand, if moving your debt around means getting a lower interest rate that helps you get out of debt more easily, new credit could ultimately help your score. (To learn more, read 0% Balance Transfers: Who Really Benefits?)

Types of credit used counts for 10% of your score. If you have an auto loan, a mortgage and a credit card – three different types of credit – it can mean a better score than if you just have credit cards. Again, don’t worry about this one. Applying for different types of loans to try to improve your score will have little impact and gets you further into debt – not what you want when you have less than stellar credit. Focus on paying down your balances and making your payments on time. (For options to improve your credit score, read 7 Tips to Bounce Back from a Credit Score Disaster and 3 Easy Ways to Improve Your Credit Score.)

Information That Won’t Directly Hurt Your Score

You might be glad to know that the following things have no direct impact on your credit score:

– Your income. It doesn’t matter whether you make $12,000 or $120,000 per year, as long as you’re making your payments on time. Having a low income doesn’t have to mean having bad credit.

– Your address. Living in a bad neighborhood won’t give you a bad credit score, nor will living in a prestigious one give you a good score. If you own a home, its value doesn’t influence your score, either.

– Your participation in a credit counseling program. Signing up for help managing your bills neither hurts nor helps your score. It’s the specific steps you take under that program that will influence how you rate.

– Your race. Even if someone could easily guess your race based on your name, FICO doesn’t factor race into your credit score.

– Your marital status. Your credit report doesn’t state whether you’re married or divorced, nor does it factor this information into your score. Marriage might indirectly lead to a good credit score if having two incomes makes it easier to pay bills you were struggling with – or it might leave you with bad credit if you marry someone financially irresponsible. Divorce can indirectly hurt your credit score if it damages your finances, but again, marital status won’t affect your score directly.

–The interest rate on any of your loans or credit cards. Whether you’re paying the default rate of 29.99% or a promotional introductory rate of 0%, the scoring formula doesn’t care. (Read Understanding Credit Card Balance Transfers and Shuffle Away Your Debt With Balance Transfers to learn more.)

While not technically bad because it probably means you have no debt, having no credit history and no credit score can make it harder to rent an apartment, open a credit card account or get a loan. In many cases, you can get around your lack of a score by using alternative methods to prove your financial responsibility. For example, if you want to get a mortgage, you can submit a history of timely rent and utility payments with your mortgage application. (For more, see The Road to the Worst Credit Score Ever.)

Implications of a Bad Credit Score

If you’re able to get approved for new credit at all, having a bad credit score means you’ll pay significantly higher interest rates than someone with an excellent score. The consumer credit counseling agency Springboard reported that in January 2014, a consumer with a credit score of 300 to 550 could expect to pay 9.5% for a mortgage, 18.9% for an auto loan, and 28.9% for a credit card. Borrowers in the subprime category of 550 to 620 didn’t fare much better, except in credit card rates, where they might pay 19.8%. Meanwhile, a consumer with an excellent credit score of 740 to 850 could expect to pay 3.9% for a mortgage, 5.1% for an auto loan and 7.99% for a credit card.

The higher rates you’ll pay when you have bad credit mean higher monthly payments and much more money spent on interest in the long run. You can expect to pay higher premiums for auto and homeowners insurance, too. It’s hard to improve your finances under these circumstances. (For related reading, see Credit Cards for People with Bad Credit.)

Tips for Improving a Bad Credit Score

There are some extreme ways to try to raise your credit score, but not everyone can use them and they might even backfire. Here are some simple steps you can take that will almost certainly improve your score.

1. Make at least the minimum payment on time, every time, on every account. You may not have the cash to pay off your balances or even make a dent in them, but if you can at least make the minimum payment by the deadline each and every month, it will help your score.

2. Try to fix significant credit report errors. If there are negative items on any of your three major credit reports, follow the credit bureau’s steps to try to get those items removed. This process can be frustrating and even futile, as Kiplinger writer Jessica Anderson found when she went through the process, but it’s worth trying to clear up any mistakes.

3. Talk to your creditors. If you’re having trouble repaying your debts, see if you can work out a more favorable arrangement with any of your credit card companies or lenders. Make sure you get any agreement in writing. Be aware that some arrangements can hurt your score, though. Getting your credit card payment due date changed to five days after you get your paycheck, for example, will not hurt your score, but getting your creditor to reduce your loan balance will. (To learn more, read Will a debt settlement program affect my credit score?)

You’ll probably want to track your credit score to see whether your efforts are making a difference. To stay on top of changes in your credit score, consider using one of these top websites for checking your credit scores. You don’t need to sign up for a paid credit monitoring service or pay for your score. Just make sure you understand the limitations of free credit scores.

The end game is not really about improving a three-digit number, but about correcting the problems that got you into a difficult financial situation. It’s about taking action to give yourself more options and more peace of mind when it comes to your personal finances and your life. In the long run, it’s not having a 740 credit score, but being out of debt and having money in the bank that will allow you to achieve these goals.

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Your guide to credit score ranges

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You know your credit scores, but what does that actually mean?

You may even know what credit score range you’re in — but do you know the significance of being in that range?

Making matters more complicated, you have multiple credit scores because there are different credit-scoring models and it can be difficult to understand why there’s variation between them.

Despite the confusion, knowing where you fall on a credit score range can be immensely helpful. It can help you predict whether you’ll qualify for a new loan or credit card, so it’s worth working to understand it all.

FICO and VantageScore Solutions create the most widely used consumer credit scores and update their scoring models from time to time. For example, VantageScore Solutions just released a new version of its scoring model, VantageScore 4.0.

FICO has two main types of credit scores:

• Base FICO® Scores: These predict the likelihood a consumer won’t make a payment as agreed on any type of account in the future, whether it’s a mortgage, credit card or student loan.

• Industry-specific FICO® Score versions: These tailor credit scores for particular types of lenders, such as auto lenders or credit card issuers.

The ranges listed below can give you a general understanding of where you stand compared to other consumers.

At a glance: A guide to credit score ranges

and VantageScore 4.0

Breaking down credit score ranges

There are common traits among different credit scores. For example, FICO and VantageScore Solutions use similar criteria for determining a score. Also, a lower score indicates someone is riskier to the lender; in other words, he or she is less likely to repay debt.

Here’s how your scores (either FICO or VantageScore) could impact your financial options:

You might not be able to get approved for a loan or unsecured credit card at all. If a lender or issuer does approve an application, it likely won’t offer the best terms or lowest possible interest rate.

Fair to good: the mid-600s to mid-700s.

You are more likely to get approved for financial products and may be able to shop around and compare options between different lenders. However, you still might not get the best terms.

Very good and excellent: above mid-700s.

A lender could deny an application for another reason, such as having a high debt-to-income ratio, but those with top credit scores likely won’t have their applications denied because of their credit scores.

The applicants are also most likely to get offered a low interest rate and may have the most options when it comes to choosing repayment periods or other terms.

It’s best not to because each application can result in a hard inquiry, which could hurt your credit. You can research your likelihood of being approved by checking Credit Karma’s Approval Odds (remember: Approval Odds are predictions, not guarantees) for a particular card or by getting prequalified for an offer (although remember that prequalification isn’t the same as being approved — you still need to apply for the card).

The same scores might mean different things

As you can see from the table, different credit-scoring models may have different ranges and scoring criteria. That means the same credit score could represent something different depending on which credit model a lender uses.

A VantageScore 3.0 score of 661 could put you in the good range for example, while a 661 FICO® score may be considered fair.

However, according to Jeff Richardson, vice president of marketing and communications for VantageScore Solutions, lenders create or use their own ranges when making credit-based decisions. In other words, what one lender might consider “very good” another could consider “good.”

Even with all the variability, knowing where you generally fall on the credit score range can still be important. Your range could help you determine which financial products you’re eligible for and the terms a lender might offer you.

How many credit scores do I have?

It’s difficult to pinpoint exactly how many scores you may have but it could be hundreds. There are many different credit-scoring models, and even the same model could give a different score depending on whether it uses data from your Experian, Equifax or TransUnion credit report.

Sometimes, a few points can make a big difference.

Slight day-to-day fluctuations in your credit scores are common and aren’t necessarily an indication that you’re doing something wrong. The difference between a few points might not even matter.

Say you have a credit score of 810, and you’re eligible for a lender’s best rates and terms. If your score increases to 815, it might not matter — they were already offering you the best deal.

However, some lenders’ underwriting criteria require an applicant to meet a credit score threshold. In these cases, a rise or drop of a few points could make a big difference. That’s because if you don’t make the cutoff, your application could automatically get rejected.

Knowing where you stand in relation to a lender’s threshold or recommended credit range can help you find the financial products you’re eligible for and give you a goal if you’re working on building your credit.

Ultimately, lenders may set their own credit ranges and criteria for approving an application. But if you know where you stand on a credit score range, you can make educated guesses about your financial profile.

You’ll be able to better predict whether an application will be approved or if you’ll qualify for low interest rates or other favorable terms. If you use this knowledge while shopping for financial products, you may be able to avoid submitting unsuccessful applications.

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Credit Karma guide to free scores

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Credit Karma Guide to Credit Card Terms and Conditions

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A quick overview of your mortgage loan options

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Credit Karma Guide to Business Credit Cards

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5 tips for reapplying after your credit card application is.

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Why credit scores differ between credit reporting agencies

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How to Build Your Credit Score from 0 to 700 in 6 Months

Love it or hate it, your credit score has an impact on your finances. If you have a low credit score, you’ll pay higher interest rates and more for your auto insurance. In fact, according to BankRate, the current difference between a 580 and 700 credit score is 1.581%. That increases the total cost of a $150,000 30-year mortgage by $102,367.

In order to build your credit score, you must borrow money. But in order to borrow money, you have to have some credit. Seems like a catch 22, right?

While they certainly have a laundry list of negatives, nothing can help you build credit more quickly and easily than a responsibly used credit card. Here’s how I used a credit card to build my credit score from 0 to 700+ in 6 months:

1. Apply for an Easy Credit Card

My first credit card was a student card. These are designed specifically for students with limited credit history. Keep in mind that each time you apply for a card or loan, your credit takes a hit. Refrain from applying for multiple accounts until you’ve established at least a year’s worth of credit.

35% of your score is determined by payment history. If you are late on a couple payments (especially early on), your score will drop significantly. The best way to make sure your credit card bill is paid each month is to set up automatic payments through the credit card website. You can set your account up to automatically pay your monthly bill directly from your bank account.

As a word to the wise (from someone who’s made the mistake): Be sure to make sure you have enough in your bank account to pay off the bill. This will keep you from missing a payment and incurring unnecessary overdraft fees.

3. Buy ONLY What You Can Pay Back

Never buy more than you’ll be able to pay off each month. If you don’t have much in your bank account, just buy something small each month (Netflix subscription, tank of gas, or pack of gum). The last thing you want to do is sink into credit card debt, which will cost you 15%+ in interest and tank your credit score.

4. Use as Little Credit as Possible

FICO considers you more of a credit risk if you use up a more significant portion of your line of credit. For example, if your credit limit is $1,000 you should try to keep your balance below $200-300 per month. If you make a habit of getting close to your credit limit, your FICO score will take a hit.

5. Don't Fall in Love with Your Card

Credit cards have a lot of great benefits like cash back bonuses, reward points, and building credit. On the flip side, they decrease the pain of purchasing (which leads to higher spending) and can trap you into high-interest debt. They are a slippery slope that destroy a lot of financial lives (especially young ones). Be smart.

Student credit cards are great tools for college students and recent graduates. They are built specifically for young people with limited credit history. The Discover Open Road Card for Students (not an affiliate link) gives you 1% cash back on everyday expenses and doubles to 2% for Gas and Restaurants. There is no annual fee.

If you follow this outline, you should be able to get your score at or very close to 740, which will get you the best interest rates and keep your auto insurance as low as possible.

It's your turn! How have you built credit? Has an increasing credit score helped you save money? Leave comments below!

Nathan is the author of Amazon best-seller Dividend Growth Machine: How to Supercharge Your Investment Returns with Dividend Stocks.

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Ronald Tucker 2 years ago from Louisville, Kentucky

I had credit scores of 607(transunion) 615(Exquifax) in 2013. I applied for a Capital One secured card in April 0f 2013 and was approved with a $200 credit limit. I would had $100 each month while paying on time and keeping my credit utilization around 10% or lower. After about six months my scores were 640+ across all three credit bureaus. After another six months of responsible use my credit score were 670 to 700(considered by FICO as Good) and in July of 2015 I had credit scores of 750+ (Excellent)across all three credit bureaus at which time I applied for Capital One Quicksilver card and was approved within a week with a $10,000 credit limit. I still keep my utilization under 10% that continually boost my score. Secured credit cards can help one build or re-establish their credit if used responsibly.

first credit card ever opened 2 months ago with capital one. I was advised by a family member to use it a lot and pay it off immediately. The credit line is a measly $300, so each month I've been spending repeatedly using it to pay small bills and make purchases, then immediately paying it off. Your advice seems to be different, you're saying I should barely use it at all to avoid approaching $300.

With a credit line this low, any specific advice?

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Automatic payments is something I never thought of telling people who have a hard time paying bills on time. Seems like one of the simplest steps to take when trying to build your credit.

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Thanks for the heads up!

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No Credit Score Doesn’t Mean a Zero Credit Score

The most frustrating thing about credit might be the chicken-and-egg problem of establishing it: Nobody wants to give you credit when you don’t have a track record of using credit.

But if you’ve never had credit and don’t have a credit score, that doesn’t mean you have a zero credit score. You have the absence of a score: You’re “credit invisible.”

You have a different problem from someone who’s had credit and messed it up. That person has the harder task of restoring their credit.

You just need to get on lenders’ radar by building your credit in the first place. Then the data in your credit reports will earn you a credit score, and a good score will earn you better access to financial products.

What’s the starting point for your score?

The credit score scales used in most lending decisions, FICO and VantageScore 3.0, start at 300 and go up to 850. But just as being new to credit doesn’t mean you start at zero, it also doesn’t mean you begin in the basement at 300. After all, if you’ve never had credit, you’ve never made score-devastating mistakes.

Think of it like the first pop quiz of the school year. If you missed it because you were at the dentist, that’s different from being in class and answering every single question incorrectly. Eventually, your teacher will evaluate your performance, but not until there’s some data.

When you have no credit history, the credit bureaus don’t know enough about you to guess if you’ll pay back borrowed money.

When you have no credit history, the credit bureaus just don’t know enough about you to guess whether you’ll pay back borrowed money. And that’s all a credit score is: an estimate of the likelihood you’ll pay back the next credit you’re granted, based on the data in your credit reports.

Once you begin using credit and receive a score, it will depend on several things: how well you handle that credit, how long you’ve been using credit and the mix of credit types you’re using. Your score won’t start at the very top, but it won’t necessarily be as low as possible, either.

How to get credit in the first place

To introduce yourself to the credit bureaus and develop a credit history, you should apply for credit. You can start building credit with products that protect lenders from the risk you won’t repay, such as secured credit cards and credit-builder loans.

Before you apply, request a free credit report from each of the three credit reporting agencies. You’re entitled to one from each agency each year. If you’ve never had credit but do have a file, that’s a red flag: Maybe someone else’s information has been mixed up with yours or someone is using your identity to get credit. Dispute any errors to get them cleaned up.

Recipe for good credit: All bills paid on time, credit card balances low, and a mix of installment and revolving accounts.

Once you’re approved for your first lines of credit, follow these basic rules:

  • Pay bills on time, every time. Payment history influences your scores the most.
  • Use only a small portion of your credit limit. Keep your balances at less than 30% of your limit, and the lower the better.
  • Aim for a mix of account types — for example, installment loans with regular payments, such as an auto loan, and revolving debt, such as credit cards.

Follow these steps and you’ll fatten up your credit reports in short order. You’ll also have built a credit score that gets you lower interest rates and access to better credit products — an unsecured credit card or one that offers rewards, for instance.

Don’t get too hung up on numbers

There once was a possible credit score of zero — and it was the best on the scale. Experian Risk Analytics developed something called the National Risk Score, a number between zero and 1,300 designed to predict the risk that you’d eventually file for bankruptcy. The lower your number, the better. Under the main scoring models these days, the opposite is true.

But you know what credit experts say about credit scores? Don’t get too hung up on the numbers. Your credit score gets recalculated on demand, whether it’s requested 10 minutes or 10 months after the last time somebody asked, and it accounts for the most recent additions to your credit reports.

Rod Griffin, director of public education for Experian, says that you should focus instead on your “general risk” category. Each lender can set its own parameters, but generally the range for credit scores looks like this:

Paying every bill on time and keeping balances low will help you have good scores — no matter which scoring model a lender uses to get a snapshot of your credit habits or when that snapshot is taken.

This article updated Nov. 4, 2016.

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  • Payment history (35% of the rating)
  1. You have many outstanding and delinquent or old debts that have caused your score to drop below 300, which usually then defaults to 0.


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