How to Live With a Zero FICO Score

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The Fair Isaac Company's system of credit scoring, known as FICO, is widely used by lending institutions to gauge a person's creditworthiness. The FICO score is based on a variety of factors, including total amount of debt, type of debt, payment history and new lines of credit. A FICO score of zero is not a death sentence, but rather, it presents a choice to either live your life on a cash-only basis or work on establishing or improving your score.

What Is a Zero FICO Score?

FICO scores generally fall between the numbers 300 and 850, with 300 signifying a poor credit score and 850 being excellent. However, when you don't have sufficient credit history to generate a credit score, your credit score can come up blank. As personal finance site Nerd Wallet notes, a zero score doesn't signify that you spend recklessly -- a 300 would be more indicative of that. At the same time, a zero score can be problematic in its own way.

Zero Score: Blessing or Curse?

Contrary to the myth that a zero FICO score is a boon, notes credit information service Free Score, a zero score does not signal that there are no derogatory marks on your credit report. From a lender's point of view, a zero score is a stumper, because a lending institution won't know how to categorize you or gauge your ability to pay back debt -- so it may be unwilling to give you a loan.

Living Off the Credit Card Grid

Some people make the choice to avoid using credit of any kind, because they appreciate the financial freedom that comes from having zero reliance on credit. In this case, the easiest way to live with a zero FICO score consists of diligent planning, budgeting and saving. In a nutshell, this involves keeping expenditures low and building up enough funds to pay cash instead of using credit for large purchases such as a car.

Getting Loans Without a Credit Score

As Free Score notes, a zero credit score doesn't mean you're doomed from ever obtaining credit. Everyone begins their financial life with no credit history. Lenders may be willing to look at other aspects of your life in lieu of a credit score, such as:

  • employment history
  • checking and savings accounts
  • residence history, preferably of long duration

If you have no credit history, you may be able to get a manually underwritten loan, in which case the lender reviews non-traditional forms of credit such as 12 months of canceled checks showing payment of rent, utilities or insurance as the basis for underwriting a loan. However, mortgage rate comparison website Mortgage Loan warns that finding such lenders is challenging and it may be easier to build up your credit instead.

Increasing a FICO Score

FICO scores are subject to change and you have the power to increase them to improve your chances of obtaining loans. If you're starting out without a credit score, you need at least one account with your name on it that is reported to credit bureaus. If you've never had a credit card or have bad credit, a secured credit card is a kind of credit card on training wheels: you pay down a deposit, which becomes your line of credit. You make purchases with the card and pay off balances through regular payments to establish credit history on credit reports.

Eventually, upon establishing a good payment history, you can ask your credit card company to upgrade you to a regular credit card. By maintaining good habits with the latter, such as keeping balances low and paying on-time and regularly, you can also boost your credit score.

You can also raise FICO scores by clearing up errors in your credit reports. Order a free credit report annually from all three credit bureaus, Equifax, Experian and TransUnion. Scour each for any inaccuracies, such as payments you made that were not reported or unusual activity you did not do. Monitor your reports vigilantly and request corrections be made by the credit bureaus.

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