Having nothing at all is better than having something that is bad. This is because having something bad will make people look at you in a bad way. The same goes for having bad credit. In this article, we are taking a look at whether having no credit is better than having bad credit. Like it or not, there are still people who do not have any credit history whatsoever.
So in this article, we are going to take a look at whether no credit is better than bad credit, and we are also going to take a look at the disadvantages of both. Following that, we’ll show you how to establish credit if you don’t already have it, as well as how to build credit if you have bad credit. When we are done, you will have all the knowledge you need to build your credit.
What is No Credit History?
A person has no credit history when the person does not have any credit accounts, so there is nothing to report to the credit bureaus in order to form a credit report and history. Another case when someone has no credit history is when the information on the person’s credit report is too limited to calculate the person’s credit score. In this case, the person has no credit.
People who often have not applied for a credit card, loan, or mortgage and have not reported any account activities for the last two years usually do not have credit. Young adults are the majority of people in this group, but others whose accounts have been inactive or closed will also have no credit history at all if it continues for many years.
What Does It Mean to Have Bad Credit?
Having bad credit means you have credit, but your credit score is not high enough to qualify as good or excellent credit. This means that you have taken out a mortgage loan or have credit cards and other items that are used to calculate your credit score. But the fact that your credit history is not good enough means you have bad credit.
Bad credit basically occurs when people have negative information, such as late payments, bankruptcy, and other collections accounts, on their credit reports. which all make your credit score lower and inhibit your ability to get approved for future loans, credit card mortgages, and other types of credit. It is important to understand that some negative information in your credit report will fall out after 7 years.
Is No Credit Better than Bad Credit?
Now that we have seen what no credit history and bad credit history mean, let’s take a look and understand if no credit is better than bad credit. One thing is established. Having a poor credit history or no credit at all makes it difficult to qualify for credit to use in building your financial life. It will be difficult to get loans, credit cards, mortgages, and others if you have no credit.
If you have no credit history or a history of missed payments, lenders view you as a risk because they do not know if you are going to pay back the loan you are applying for. What this means is that having no credit and having bad credit are basically the same thing. The important thing is that when people have bad credit or no credit, there are certain steps you can take to fix it.
How to Establish Credit if you have no Credit
There are many steps you can take if you do not have a credit history so that you can start establishing credit today to help you boost your financial life. Some of the steps to take so that you start having credit today and listed below:
Get a Secured Credit Card
Because you have no credit, it will be difficult for you to get a normal credit card, so in that case, you need to go for a secured credit card. This is because these types of credit cards are the only ones good for people who have no credit because they are backed up by the security deposit you made when you opened the card, and that is your limit for that credit card.
Get a Cosigner
If you cannot qualify for a secured credit card or you don’t have the money, you can simply go for a cosigner who will sign and vow to pay back the money you will borrow from the credit card in case you are able to pay.
Get a Credit Builder Loan
Just as the name suggests a credit-builder loan is basically a loan that is used to build credit. Even without having a credit card, you can make use of this type of loan to build credit as they are installment loans where you don’t get access to the whole lump sum at once.
Tips for Building your Credit Score
Now that we have seen how we can establish credit through the above-listed steps, let’s talk about how to build your credit score if you have bad credit. To do so, carry out the below procedures:
Become an Authorized User
One of the best ways to build your credit score from a bad credit history to a good one is to become an authorized user on someone else’s credit card. You can enjoy the benefits of a credit card without having to pay for it if you become an authorized user.
Always Pay Bills on Time
The best way to quickly build up your credit history is to always make large payments on time. If you are making late payments on your credit card, it is going to result in you having bad credit because your payment history makes up about 35% of your credit score.
Don’t Apply for Too Many Credits at Once
Do not apply for too many credit cards or too many loans at a time. This is because applying for a credit card or loan leads to a hard inquiry. A hard inquiry is when a credit card issuer or a lender pulls your credit report to determine whether you are worthy of having your application approved. When this becomes too much at a particular time, it impacts your credit score.
There you have it. These are some of the ways that you can use to improve your credit score if you have bad credit. I also mention some of the ways to establish credit if you do not have a credit history; these are not all the ways, but they are some of the most important things you need to know.
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