One of the challenges of having no credit history is that you usually need credit to get a car loan. And you can’t get credit unless you have already have credit, like a car loan.
It’s a which-came-first-the-chicken-or-the-egg kind of puzzle, except it’s your credit.
Until recently, there wasn’t much to be done about it. It was a fact of life, right up there with death and taxes.
Sure, there are always work-arounds (see our post, “The No-Credit Dilemma: 5 Ways to Get the Credit You Need”). You could have Mom and Dad put you on their credit card , which would jump start your credit history by giving you some of theirs (yes, it really does work like that: you get credit for their payment history).
Or you could ask someone to cosign a loan for you. That works too.
The trouble with most of the methods is that, even though they work, you have to either ask someone for a favor or at least have some time to wait out the building process. Neither of those looks good when you need a car loan now.
So here comes the good news…
Having No Credit Score Doesn’t Mean You’re a Credit Risk
The credit gods have finally looked around and noticed that hey, there are people out there without a credit history who aren’t credit risks.
Yes, there are millions of people just like you who just haven’t borrowed money or gotten credit cards but who pay their bills on time, month after month.
There are people who have stable jobs and stable residences who haven’t had the opportunity or the need for credit. And they deserve a chance, too.
A Credit Score for People with No Credit
So Fair Isaac Corp. – the folks who created the most widely-used credit score, known as the FICO score – came up with a new scoring system just for these people.
The new credit scoring system will use the same range (300 – 850) as the existing one, but it will take into account things like on-time payments of telephone, electricity, cable TV, and other bills. While missing payments on these bills can have a negative effect on credit scores, making payments on time rarely gets reported to the credit bureaus.
Fair Isaac Corp. will also use other information like how long someone has lived at their residence and how long they have been at their job. Having the same job and residence for longer periods of time indicates stability, which means lower risk to lenders.
The new system could create credit opportunities for 15 million of the more than 53 million Americans who currently have no credit scores.
When Fair Isaac rolls this out to lenders later in the year, it could help close the catch-22 loophole of needing credit but having no credit, and help you get the car loan you need.