If you have no credit or terrible credit, it could affect your ability to manage your money. When it comes to credit, having none at all is preferable to having bad credit. However, it may be challenging to qualify for loans or credit cards if either no credit history or a negative credit history exists. Although you may be able to get a loan with either credit problem, you may have to pay a higher interest rate or accept less favorable terms.
Lack of credit and poor credit are two distinct issues with similar outcomes. In light of this, your approach to resolving one of these credit issues may change slightly.
The Implications of Having No Credit
To have no credit implies never applying for any financing, such as a loan, credit card, or another form of borrowing. Equifax, TransUnion, and Experian claim that you have no credit history. The Federal Trade Commission (FTC) labels you “credit invisible,” and the Consumer Financial Protection Bureau (CFPB) concurs. You and another twenty-six million consumers in the United States share this demographic.
Required Minimum Credit Score
An account that is at least six months old and an account that has been reported to the credit bureaus during the last six months are both required by FICO.
Furthermore, the CFPB believes that 19 million customers have credit reports but do not fit the criteria for a credit score. Nevertheless, this could put you in the “no credit” category in the eyes of potential lenders. Since they have neither a credit history nor a credit score, about 45 million Americans cannot get a loan.
Credit reports and ratings help lenders determine whether or not you are a safe bet for a loan. (Within the next 24 months, your credit score will predict whether or not you will be 90 days late on a payment.) The creditworthiness of an individual cannot be determined without access to their credit record and score. If you haven’t established yourself as a reputable borrower, some creditors might be unwilling to provide you with a loan.
Implications of Credit Issues
Bad credit might be the result of previous financial mistakes. Your credit reports could include negative information like late payments, charge-offs, collection accounts, bankruptcies, etc. On a scale from 300 to 850, your credit ratings will be in the low 300s.
Some people have trouble getting loans because of their credit history. A substantial group of people (33%) with FICO ratings below the bare minimum of 670. On the other hand, around 40% of all consumers have a VantageScore of 660 or lower.
It is ultimately up to the individual lender how thoroughly they investigate a borrower’s creditworthiness and how much risk they are willing to take. That’s why some banks will lend to you even with a 620 FICO, while others won’t even look at your application.
Why it’s much worse to have bad credit than no credit at all
Borrowing money can be difficult if you have poor credit or no credit. But a lender will see weak credit more harshly than no credit
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Lenders may be more willing to deal with borrowers with no prior late payments or bankruptcies. Being creditless is superior to having poor credit in this regard. When you have bad credit, you may experience more severe consequences. If you don’t have much credit history, for instance, you might be able to discover mortgage lenders who are willing to work with you anyhow. However, it might be complicated to secure a mortgage loan if your credit score is below the lender’s minimum threshold.
Finding a lender willing to work with someone who is credit-experience-less can be difficult. Those with no established credit history need not despair since financial institutions and credit card firms aim to serve them.
Credit Cards that Require a Deposit as Guarantee
A secured credit card requires a security deposit. When opening a new account, it’s common for the producing financial institution to demand an initial deposit. In most cases, your credit limit will be equivalent to your initial deposit. This guarantee significantly mitigates the card issuer’s risk. Thus, even though you don’t have a long credit history, you might be able to get a secured credit card.
Make sure the secured credit card issuer you’re thinking about reports to all three leading credit agencies before you apply. (The vast majority of card issuers do, while some smaller banks, credit unions, and community banks may provide some credit reporting.) Also, be careful not to rack up too many charges on your new card right once, or you could have credit issues. Make on-time monthly payments until the debt is completely paid off.
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