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Low or Zero Credit Score – Might be Your Credit History

The Borrowell Team Jun 10, 2020

Seeing a zero credit score can be a disheartening experience. There are a few reasons why you may not have a credit score, oftentimes it's tied to credit history. 

Credit history accounts for approximately 15% of your credit score and is weighed based on how long your accounts have been open, how long it’s been since you’ve used them and whether they’re still active. Most credit bureaus look for a minimum of six months of responsible credit in order to calculate your credit score.

Credit History Accounts for 15% of your credit score.

It’s a bit of a “what comes first?” conundrum. If a person has never had credit, banks and lenders may be wary about lending that individual money. But then how is this person supposed to get credit if they’ve never had access to it?

Establishing history takes time, but responsible habits can often translate into positive results, we’ve got some tips to help you start building! But first, let’s start with the basics.

What is a credit score?

A credit score is a metric used by banks and lenders to access creditworthiness. Credit scores, range between 300 and 900 depending on the scoring model. There are two credit reporting agencies in Canada that calculate credit scores: Equifax and TransUnion.

How is a credit score calculated?

Both credit reporting agencies collect financial information from banks and lenders and use this information to calculate one’s credit score using complex models. Borrowell uses Equifax and provides the Equifax Risk Score (ERS) 2.0 score for its customers. It’s a popular score, used by many banks and lenders, and is also the score that is used in Borrowell’s internal lending decisions.

What is a zero credit score versus a low credit score?

It’s important to note the distinction between having a zero credit score and having a low credit score. If you have a low credit score, you may have difficulty accessing credit because you need to rebuild your credit after bankruptcy or a number of other factors that have negatively impacted your score. Not having a credit score means there is an absence of a score – meaning the credit reporting agency doesn’t have enough information about you to produce one. There are a few reasons why this may be the case:

New to credit

If you don’t have any credit accounts or credit history, the credit reporting agency won’t have enough information to make a decision about whether or not you’re worthy of credit. This is common for students just starting out! 

New to Canada

New to Canada? Welcome! Even if you had a credit history before, it’s important to build it again in the country you’ve relocated to. Again, it comes back to credit history. 

Credit hasn’t been used recently

If you had a credit card and used it responsibly, in theory, you should have a credit score. But if you stopped using credit in favour of a debit card, which doesn’t report to the credit bureau, there eventually may not be enough information to produce a score.

Why is having a credit score important?

Having a good credit score affects your overall financial well-being. It can help you access better financial products, such as the best credit cards and low-interest personal loans. Checking your score and report in general can protect against identity theft you can sign up for free and view your full credit report).

Steps to consider to build your credit score

Building a credit score takes hard work and patience. It takes diligence and isn’t something that will happen overnight. There are two things that you can do to start building your credit. 

Get a co-signer

This is a person who agreed to be responsible if you don’t’ pay your debt back as agreed. Younger people typically start this way by getting their parents to co-sign a student loan or credit card. Just keep in mind that if you miss payments this will also impact your co-signer- so the agreement should not be taken lightly. 

Apply for a secured loan

A secured loan is backed by something you own, like a car. If you have something you can use as collateral, this might be a good option, however, keep in mind that if you don’t honour your payments you may lose that asset. 

Apply for a secured credit card

The responsible use of a credit card and managing payments is critical to building a credit score. This means watching credit utilization and paying bills on time, every time. A secured card has a slightly different qualitication process and requires a security deposit making it difference than a traditional unsecured card.

What is a secured card?

A secured credit card is just like any other credit card. The one difference is that cardholders are required to send in security funds as collateral to show commitment to using the card responsibly.

Unlike a pre-paid card, which needs to be loaded with money, a secured card gives the cardholder a credit limit and a chance to build their credit, as their activity is sent over to credit reporting agencies monthly. With pre-paid cards, no credit card activity is sent to the credit reporting agencies. However, with the Guaranteed Secured Mastercard®, Capital One sends cardholders’ activity to the agencies on a monthly basis, which helps customers build better credit if they use their cards responsibly.

A secured card is an excellent tool to help you if you have little to no credit history build credit and set yourself up for future opportunities.

Borrowell recommends the Guaranteed Secured Mastercard by Capital One for those who want to start building their way to a better financial future. Applying is easy, and approval is guaranteed, as long as you:

  • Are at least the age of majority in their province or territory of residence.
  • Haven’t applied for a Capital One account more than once in the last 30 days or had a Capital One account that was not in good standing in the last year.
  • Don’t have an existing Capital One account or a pending application for one.
  • Provide the necessary security funds.

How to use the Guaranteed Secured Mastercard

Once security funds have been received and the account has been activated, it’s important you use the card responsibly. Here’s what responsible use means:

  • Paying the balance on time, every month. Being on top of due dates and making sure no payments are missed is key to showing a commitment to building credit.
  • Setting up alerts and reminder emails is a great way to stay on top of credit use and keep an eye on upcoming bills.
  • Having patience – building credit takes time! Improving a credit score and establishing a good credit history is a process that requires dedication. Over time, ongoing responsible use can help improve your credit score.

The Bottom Line

The Guaranteed Secured Mastercard from Capital One is a great choice if you are looking to build credit, but it’s important to remember that building credit requires a commitment to making payments on time and using credit responsibly.

Sign up to Borrowell to start tracking your progress, and get ongoing tips to help you improve over time- it’s free and it only takes a few minutes. You can then see credit products that match your profile, including the Captial One’s  Guaranteed Secured Mastercard and apply in just a few clicks. 

The Capital One product details described in this article may have changed since the time of publication. Please see capitalone.ca for the current product details.

Editor’s Note: This blog was originally published by Rachel Surman in July 2018 and has since been updated for accuracy and comprehensiveness by the Borrowell Team.

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Borrowell® is a registered trademark of Borrowell Inc. All Rights Reserved. The Equifax credit score is based on Equifax’s proprietary model and may not be the same score used by third parties to determine your credit profile. The score provided to you for educational use is the Equifax Risk Score.


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