Which is worse, having bad credit or no credit at all?

Overview:

It is true that credit score has a big impact on an individual’s life; however, it is not the end of the world. Even good people can have a bad credit score. So when does credit score matter? The credit history matters the most when applying for credit, if the credit report does not show enough creditworthiness, an individual might be denied credit or offered at high interest.

Which is worse, Having bad credit or no credit? The answer is that they are not the same, however; to qualify for a credit card, mortgage and other loans the effect of bad credit and no credit might be the same. When an individual applies for credit, the lender relies on credit history to gauge the credibility, the credit history of a person acts as a reference. If payments are timely, the citations are sound. If there are late payments, foreclosures or bankruptcies, then the references might be bad.

Most lenders might turn down an application for no credit like they would for bad credit and so the situations are similar in many ways. Essentially, credit reports are like report cards; it gives detailed information about an individual’s credit history including the number of credit accounts, payment history and if any balance is due.

Bad credit describes a past failure to keep up with a credit score and the sometimes the inability to get approval for new credit. It does not mean that a person has not paid for the obligation at all, but hasn’t paid them on time. Bad credit affects more than loan approval and credit card approval; insurance companies use the credit report to give credit rates. If the credit score is below 620 then it is considered to be credit. However, bad credit does not last forever, it can improve over time. An individual should first target on including positive information on the credit report in addition to new accounts and pay them on time.

Having no credit means there is nothing a person has done to establish a good credit score, no credit card usage, no loan, no mortgage.  This is usually the case of young adults and senior citizens who pay everything that they need in cash and so never use credit. There are mixed views on no credit and bad credit, some banks won’t loan money to people without any credit history. It is more like hiring an experienced guy who is fired after 12 years of experience or a fresher. Does the boss want to spend time training the person or give a shot to the person with experience? The reason why bad credit is not as damaging as no credit is because lenders have something to base their decision upon. They can do an analysis of the credit report and guess what led to the bad credit report. To conclude, regardless of whether it is no credit or bad credit, the aim is to ameliorate the credit account.

Updated: December 5, 2016 — 7:11 pm

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