Credit history plays a major role in one's ability to make major purchases. Poor credit results in difficulty qualifying for affordable rates on mortgages or automobile loans, but no credit history can cause the same problems. there are several reasons why a person can lack a credit history.
Age
Since credit agreements are legally binding, most states require that anyone applying for credit be of the legal age to enter into contracts - usually 18 years old. People younger than the legal age requirement will not have credit history because they are not old enough to apply for credit.
Banking Habits
Although a checking account is not a line of credit, establishing bank accounts adds to credit history. Someone who never uses banks or any other form of credit will not have any credit history. This could be a person who always pays with cash.
Other Reasons
A person who never applies for or uses credit will not have a credit history, and people who apply for credit under another person's name will not have a credit history under their own name. This could occur when a married couple enters all credit agreements in only one spouse's name, or it could happen in fraudulent circumstances.
Effects
The most significant effect of having no credit history is difficulty in obtaining credit when it is needed. When no credit history exists, credit grantors have no record to gauge the applicant's risk or ability to repay debt. Although no credit history means no negative information, no history is more similar to bad credit than it is to good credit.
Building Credit
Once credit history is built, it will include information on all applications for credit, outstanding debt and available credit lines. The easiest way to begin adding history to your credit file is by opening a checking account. From there, you can begin to apply for additional credit and build an extensive history.
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