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Dear Penny: I don’t owe anyone money ... but I also don’t have a credit score

After years of no debt, you can become ‘credit invisible.’ It’s not hard to become visible again.
[Getty Images] [MILOS ANTIC  |  Getty Images]
[Getty Images] [MILOS ANTIC | Getty Images]
Published Dec. 2
Updated Dec. 2

Dear Penny,

What is the best way to regain a credit score if you don’t have a score at all? According to three free credit score websites, my rating is a big zip. I haven't owed any credit in years, and I’m 59.

-K.

Dear K.,

When you don’t use credit for a long time, you become a blank slate to the credit bureaus. They have no information about how you’ve used credit in the past, so they can’t predict how risky a borrower you are.

The Consumer Financial Protection Bureau reports that about 1 in 10 adults in the U.S. is “credit invisible,” meaning, like you, they don’t have a file with any of the three major credit bureaus.

When you haven’t had an active account that’s regularly reported to the bureaus — which will almost always be a credit card or loan — in the past 24 months, there’s a good chance you won’t have a credit score.

That’s kind of ironic when you’re 59 and haven’t owed anyone in years, huh? You’ve managed to survive without debt, which seems like a show of financial responsibility.

But credit scores don’t measure your overall financial health. They don’t show how much you earn or how much you have saved. They don’t reflect all the timely payments you’ve made over the years on rent, utilities and other bills, which are rarely reported to the credit bureaus. They simply provide a three-digit snapshot of how you manage debt.

When you don’t have a score, you represent a big unknown to financial institutions.

So your challenge is to get creditors to take a risk on you. It’s not impossible. But you’ll have to start small, and you’ll pay more in fees and interest since lenders are taking a chance.

Usually the easiest way to build credit is by opening a credit card. Look for a card marketed as a starter card, ideally one that doesn’t have an annual fee.

If you can’t get approved for a regular starter card, you’ll probably have better luck when you apply for a secured credit card. You’ll put down a refundable deposit and use that deposit as your line of credit. After a year or so of making on-time payments, you’ll usually qualify for a regular credit card. Your issuing bank may even agree to convert your secured card to a regular one.

You could also apply for a store credit card, as these typically have lower minimum requirements to open compared with regular cards.

Credit-builder loans are a less common alternative to credit cards. They’re typically offered by small banks and credit unions. These work backward from regular loans, in that you make payments on a principal amount plus interest in installments, usually over two years or less. It’s only after you finish making payments that you’ll get your loan balance.

Regardless of how you start building credit, making on-time payments every month is hands-down the most important thing you can do to earn a healthy credit score.

If you go the credit card route, it’s important to make regular purchases with it so you can make payments on it. You’ll only build a credit history if you’re making payments that are reported to the bureaus.

A word of caution here: When you first get a credit card, your limit will be pretty low — often $300 or less. So you’ll only want to use your card for small purchases, because keeping your credit utilization ratio, or the percentage of credit you’re using, as low as possible is the second-most important credit score factor.

Try not to let your credit card balance get higher than 30% of your limit, and aim to pay off the balance in full each month.

The good news here is that it shouldn’t take too much time to establish a credit history. Within about six months, you should have a credit score. And while it typically takes about seven years to attain an excellent credit score, you can prove yourself creditworthy in far less time.

Once you’ve built a solid credit history, you might want to use it for a larger purchase like a home or car, which can be tough to make without financing.

But in the meantime, don’t change a thing about your spending. Just use your credit for purchases you would have otherwise paid cash for.

Keep living like you don’t have credit even once you get it, and you’ll do just fine.

Robin Hartill is a senior editor at the Penny Hoarder and the voice behind Dear Penny. Send your questions about credit scores to AskPenny@thepennyhoarder.com.

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