Your credit score is a metric that represents your creditworthiness to lenders and creditors. Whenever you apply for a loan, lenders will access your credit report and credit score to assess the likelihood that you will make timely payments. If you have a high credit score, lenders will usually be more than happy to approve your application. They may also offer you with a low interest rate.
But suppose you have a low credit score. In that case, they may be hesitant to provide you with funds, as your poor crediting standing indicates you are unlikely to honour your payment obligations.
Maintaining healthy credit scores is important if you’re in the market for a loan. But what if you lack a credit score entirely? What are the implications of having a 0 credit score?
Key Points
- Until you start using credit, you’ll start off with no credit history.
- It takes time to build a credit profile, during which time you’ll need to use credit products effectively.
- With zero credit, you could have trouble getting approved for loan products.
- To build credit from the ground up, consider taking out a secured credit card, using a credit builder program, or using a service that will report your rent payments to the credit bureaus.
How Do You Get A Zero Credit Score?
A zero credit score signifies the absence of credit history. Without a credit history, credit bureaus have no way to rate your credit profile and, as a result, they’ll assign you a credit score of zero. There are several reasons why you might lack a credit score:
You’ve Never Used Credit
Unsurprisingly, your credit history is non-existent until you begin utilizing credit. If you’re young or have simply relied on cash to pay for all your purchases, there’s no record of past behaviour that credit bureaus can use to assess your creditworthiness. Once you open a credit account and your credit information is reported to the credit bureaus, they will begin building a profile on you.
You Haven’t Used Credit For A Long Time
If you’ve abstained from using credit products for a considerable time, your credit history can become stale and outdated. As a result, credit bureaus will lack sufficient and timely payment data to assign you a credit score.
It’s wise to keep at least one account open at all times and use it occasionally. That way, the credit scoring algorithms have some data to work with to determine your credit scores.
Multiple Credit Bureaus
There are two credit bureaus in Canada, but not all lenders and creditors report to both. This means that one bureau may not have enough information on you to create a credit report and therefore a credit score.
For example, It’s possible that you check your score via Equifax and find that it is zero, but if you checked via TransUnion, you may find you have a higher score.
You’re New To Canada
If you’ve recently immigrated to Canada, you may not have had the opportunity to open a credit account or establish a significant payment history. While you may have had a credit score in your previous country of residence, that information has no bearing on your Canadian credit scores.
How Are Credit Scores Calculated In Canada?
Generally speaking, you need at least six months of credit activity in order for the credit bureaus and other credit score providers to calculate your credit scores. Depending on the credit scoring model used, the way your credit score is calculated will vary.
Below is a breakdown of the common factors most credit scoring models use:
- Payment history ~ 35%
- Used credit vs. available credit ~ 30%
- Length of credit history ~ 15%
- Public records ~ 10%
- Hard credit inquiries ~ 10%
What Is Considered Good Credit?
Credit scores in Canada range between 300 and 900. Lenders usually consider any score below 650 a red flag. Borrowers who fall in this range may experience greater difficulty qualifying for credit products and accessing lower interest rates.
In Canada, ‘good’ credit is considered anything between 660 and 724. Your goal should be to aim for a credit score that’s at least within this range, or even higher if possible.
| Credit Score Rating | Credit Score Range |
| Excellent | 760+ |
| Very Good | 725 – 759 |
| Good | 660 – 724 |
| Fair | 560 – 659 |
| Poor | 300 – 559 |
What’s Worse? Zero Credit Scores Or A Low Credit Scores?
Though you might be dismayed upon discovering that you have a zero credit score, it’s important to remember that it’s not the same as having a low credit score. Let’s compare the two.
Zero Credit Scores
Zero credit scores simply imply that you don’t have enough credit history to generate a credit score, as mentioned. It may be considered by lenders as a neutral position, rather than a negative one. Ultimately, no credit generally means that you simply don’t have enough credit history for lenders to gauge your likelihood of paying your debt payments on time.
However, without proof of your ability to manage debt, lenders will still be hesitant to extend credit to you, viewing your lack of credit experience as a risk factor. As such, zero credit can be just as detrimental as bad credit in terms of your ability to qualify for loan products.
Low Credit Scores
Low credit scores are usually a result of late or missed payments, high credit utilization, debt sold to a collection agency, or bankruptcy. With low credit scores, you’ll likely face similar problems as a person with a zero credit score, but it’s generally worse to have low credit scores.
Ultimately, bad credit shows lenders that you have a poor track record of managing credit, while no credit means lenders aren’t able to tell how you’ll manage your debt because you don’t have any experience.
How Can You Build Credit When You Have Zero Credit?
Whether you’re new to Canada or a young adult looking to build a credit history from scratch, here are a few things you can do to help you work toward building a healthy credit score.
Apply For A Secured Credit Card
A secured credit card is a special type of credit card used by those seeking to build a credit profile. It works like a regular credit card in that you can use it to make purchases. You’ll also be responsible for making payments by the due date.
A secured credit card’s unique feature is that you must put up a cash deposit before the card issuer authorizes you to use it. This deposit functions as an incentive for you to use the credit card responsibly. The card issuer will refund your deposit once you pay off your balance in full and close the account.
Secured credit cards are a great choice because they’re easy to qualify for, and you can always upgrade to a regular credit card once you’ve built up a positive credit history.
Take Out A Secured Loan
A secured loan is backed by an asset you own, such as a car or home. If you own something that you can pledge as collateral, you may be eligible for loan products from lenders. If you abide by the terms and conditions of the loan contract and make regular payments, and your lender reports to at least one of the credit bureaus, over time you can start to build a credit history.
Secured loans are a good option as they’re relatively easy to qualify for. Lenders may be willing to extend credit to individuals who back their promise to make payments with a personal asset. The asset reduces the lender’s risk, as they can liquidate it to make up the shortfall if the borrower defaults on the loan.
Apply For A Credit Building Savings Loan
A credit building savings loan is a type of loan that helps you establish your credit and save money at the same time. Instead of a lender providing you with a sum of money upfront, you contribute regular payments over a specific time into an account. Essentially, you’re loaning money to yourself.
As with regular loan payments, your lender will report your contributions to the credit bureaus, which may help you build a credit history over time. However, this isn’t always the case, so ensure you inquire with the lender about their policies. You don’t want to commit to a credit-building savings loan if your payments aren’t being reported.
Use A Credit Building Product
Some financial companies offer small credit lines that are designed specifically to help Canadians build good credit. Consider the following:
- Nyble: Nyble offers small credit lines that are easy to qualify for. You can use them to build good credit by making timely payments each month. Plus, you’ll have access to up to $150 in credit during times when you need fast cash.
- KOHO: With KOHO’s line of credit, you can build a healthy credit score. KOHO will set aside a certain amount each month and will report it to Equifax as timely payments.
Consider A Co-Signer
You can obtain a loan or unsecured credit product with the help of a co-signer. An individual who co-signs a lending contract with you legally agrees to assume the responsibility for the debt and all associated fees if you’re unable to make payments.
Using a co-signer can help you qualify for a loan that you might otherwise not get approved for. As you make regular payments on the loan that are reported to the credit bureaus, you’ll slowly build a credit history. However, keep in mind that your co-signer is on the hook for the balance should you default on the payments. Make sure they understand their obligations and do your part to keep up with your loan payments.
Have Your Rent Reported To The Credit Bureaus
Generally, rent payments are not reported to the credit bureaus, so you usually can’t use these big payments to build credit. However, there are services available that serve as the middleman between your landlord and the credit bureaus to ensure these payments are reported to the bureaus and can therefore help you build good credit.
For instance, the Landlord Credit Bureau (LCB) is a company that will report your monthly rent payments to Equifax. If you consistently pay your rent on time, these payments can positively impact your credit score.
Become An Authorized User
Ask a family member with good credit to add you as an authorized user on their credit card. Doing so will allow you to use the card, and the account’s positive payment history can be added to your credit report. You’ll benefit from the primary cardholder’s good credit history without the need to be responsible for making credit card payments.
That said, if you actually use the card and add to the balance, you should contribute to paying off the amount you use.
Bottom Line
Credit scores are a critical factor that lenders assess when they’re deciding whether to approve your application for a credit product. Without good credit scores, your options to access credit are severely limited. You may only be able to obtain high-interest loans with unfavourable terms, or you may be rejected altogether.
Luckily, there are many ways for you to build your credit history from the ground up, and most of these methods don’t demand any special qualifications on your part.
