2 things can make it hard to qualify for a loan and an apartment lease. Having no credit and bad credit may make a company unwilling to work with you. Dealing with no credit history is simpler than fixing a bad credit history. In both cases, you can want to find a cosigner that may help you out or look for other solutions to build credit. You do want to work to build a better credit history so that you can qualify for a mortgage in the future.
What is a Credit Score?
A credit score is a measure of how probably you’re to pay back a loan on time. It gives lenders a general idea of how financially responsible you’re. Your score is derived from a variety of factors, involving payment history, length of credit history, unpaid debt, kinds of credit, and new credit apps. Equifax®, TransUnion®, and Experian® are the 3 major national credit reporting agencies. Credit scores range from 300-850 points. But every credit reporting agency utilizes different scoring criteria, so having multiple scores is normal.
Not having a credit score means that you have a non-existent as well as limited credit history. If you did not take a loan before, you lack a credit history. In a few cases, you cannot have a credit due to account inactivity. If a person does not have an active credit score, it does not mean they borrowed too much money, declared bankruptcy, or possess a credit score of zero. Actually, having a credit score of zero isn’t even possible. The low scores ever seen by the National Foundation for Credit Counseling was 425.2 And that customer had declared bankruptcy and was delinquent with many creditors.
There are many reasons you can be one of the 26 million Americans that the Customer Finance Protection Bureau considers credit invisible meaning you have no credit history with one of the 3 nationwide credit reporting agencies. Below are the most common ones:
- You have not borrowed money in a minimum of 2 years.
- You have not been listed on an active credit account.
- You have recently applied for credit.
Having no credit score is called having an indeterminable credit score because banks and lenders cannot predict how risky it can be to lend to you, making them less probably to do so. That is it. That is all that can occur without your credit score. You can be less probably to qualify for a loan from a lender. Many people treat their credit score such as their Social Security number as something that defines them. Well, unlike a Social Security number, if you lose your credit score totally, you don’t lose your identity. Instead of that, you lose, well, not a whole lot as it turns out.
No Credit History
When you have no credit history, it means that you don’t have anything on your credit report at all. You haven’t borrowed money in the past. It means that you haven’t borrowed any money within the last 7 years. This isn’t a hard thing to overcome. A lot of people who don’t believe in borrowing money cannot have a credit history. If you’re in college you cannot have a credit history, until you have taken out student loans and you have a credit card. Few companies have a difficult time working with somebody with no credit history because they don’t know if you’ll pay for things on time. If you have utilities in your name or you are renting an apartment you may utilize these things to show that you’re reliable and make your payments on time.
When you have a bad credit history you have late as well as partial payments on your credit report. You might have loans that you totally defaulted on or debts that are turned over to debt collections. This negative activity can low your credit score by quite a bit. If you’re too close to the credit limit on credit cards or if you have borrowed too much money this can hurt your credit score as well. This will low your credit score and make it hard to qualify for better interest rates or loans, depending on your condition. If you have had a foreclosure as well as bankruptcy your credit score will be low. These marks will stay on your credit report for a minimum of 7 and 10 years, respectively, and will affect your credit score for that whole time. It doesn’t mean you can borrow money, but your interest rate will be a lot higher.
How bad credit or no credit can affect you
Having better credit affords can give you additional opportunities and can save you money. If you have bad credit, you cannot qualify for high lines of credit or loan amounts and you can be denied totally. You will spend more if you have bad credit as you will be charged more interest on any loans as well as credit cards that you obtain and will pay more for your auto insurance premiums. Bad credit can prevent you from securing housing and a job.
But how can no credit affect you? Without a credit history, creditors do not have a way to predict the likelihood that you’ll repay your debts. If you do not have credit, you can experience some of the similar difficulties those who have bad credit experience from non-approval for credit cards and loans to trouble finding housing, and more.
Both bad credit and no credit mean that you have some choices neither one is ideal. But which is worse? As per financial experts, bad credit will affect you more severely than no credit.
What Are Ways to Build or Establish Credit?
Building and establishing credit can take some time. But implementing better credit habits may make getting on the right track feel simple. Here are some ways to start, as per the CFPB:
- Use credit cards responsibly: A credit card is one way to begin building a credit history. Use it with great responsibly, and pay the monthly bills on time.
- Stay under your limits: few credit-scoring formulas account for how frequently you max out cards. To avoid hitting the maximum credit limit on a credit card. And be familiar with how much of your available credit you use.
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