4 Reasons You Might Have Bad Credit Even If You've Never Been in Debt
Debt can hurt your credit score, but even if you’ve never taken out a loan, you can still have a low FICO score.
That's because your credit score isn't just a measure of how much debt you have. It’s a way for lenders to determine how likely you are to repay borrowed money. If you have little or no credit activity, your score can suffer just as much as someone with a history of missed payments.
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Here are four reasons you might have bad credit even if you've never been in debt.
1. You Have No Credit History
No credit is not the same as having bad credit, but neither is good. If you don't have much or any credit history, you could be considered credit-invisible or unscorable. And when you don’t have an established credit history, you’ll have trouble qualifying for loans, apartments or jobs in some cases.
One way to establish credit and start improving it is by getting a secured credit card or becoming an authorized user on a trusted family member's account.
2. You Don't Use Your Credit Cards
It’s smart not to take on too much debt, but avoiding credit cards entirely can sometimes work against you. Though maxing out your credit card can hurt your score, zero credit usage also makes it hard to demonstrate responsible borrowing habits.
So if you have a credit card, consider using it for small recurring expenses like a Spotify subscription and pay it off in full each month so you can start building a positive credit history without accumulating crippling debt.
Financial experts recommend keeping your credit utilization under 30%, but if you can keep it under 10%, even better.
3. There Are Errors on Your Credit Report
A new investigation by Consumer Reports and WorkMoney found that 44% of consumers who recently volunteered to check their credit reports found mistakes in them, with more than a quarter finding serious errors involving debts that could damage their credit scores and limit their financial opportunities.
So, if you haven’t already, make sure to get a free copy of your credit reports from the three major credit bureaus at AnnualCreditReport.com and dispute any errors you find. Most disputes are resolved within 30 to 45 days, but more complicated cases could take longer.
4. Your Accounts Are Too New
Length of credit history is another factor that affects your score. As a general rule of thumb, the longer your credit history, the better it is for your credit. For example, someone who recently opened their first credit card may have a lower score than someone with a decade of positive credit history, even if both have never carried debt.
There's no quick fix for this, unfortunately, since building credit takes time. So just stay consistent and maintain healthy credit habits.
The Bottom Line
Having bad credit doesn't automatically mean you've been irresponsible with debt. In many cases, a low score is the result of limited credit history, reporting errors or a lack of active credit use.
Thankfully, a bad credit score isn’t permanent, as long as you continue to check your credit reports regularly and use credit responsibly, you should see noticeable improvements within six to 12 months.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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