Is no credit better than bad credit?
The United States credit score system was created to identify people whose financial management skills are considered responsible and approved by financial institutions in the country. If your credit score is high, you can do it all, including get a credit card with low fees, high limits, and lots of perks, or take out a loan, buy property, rent an apartment, and more. .
However, today we are interested in seeing what happens if the credit score is not so good or is completely non-existent. We were also wondering which of these two options was worse: having bad credit or not having any at all?
The short answer is that it’s usually better not to have a credit score because you start out as a blank slate. It is usually easier to start from scratch and progress than to fix a bad score. However, both will hold you back, which is why users in both situations are recommended to find a way to improve their credit score as soon as possible.
Luckily, there’s a way to do this whether you’re just starting out or have bad credit due to some financial mistakes you’ve made in the past. But, in order to get started on getting a good credit score, you must first understand these two situations and know how to handle them.
What if you have no credit history?
The first thing to understand is that no credit history does not mean that your credit score is zero. Instead, it doesn’t exist at all.
It’s bad for you, because lenders, card issuers, and other entities you might interact with just don’t know what to do with you. They rely on your credit score to determine whether or not you can trust their money and services. If they do not have access to this information, they will always oppose it to preserve themselves. You are not a confirmed risk, but you are still a potential risk, which increases your chances of being denied a credit card, loan, etc.
Fortunately, all is not lost. There are special services for people who are just starting to build their credit that you can turn to. After all, everyone has to start somewhere and you can get a student credit card or special credit cards for people with no credit history.
This lets you start building your credit score just by doing things that show up on credit reports. That means opening a credit card, signing up for services that report your rent, bill payment history, and more. Basically anything that shows how responsible you are for paying your dues and managing your funds.
It is important to choose services that fall under the three main credit bureaus, which are Experian, Equifax and TransUnion. In most cases, people start by getting a credit card for users with no credit history or a secured credit card.
What if you have bad credit?
Having a bad credit score means having a credit score between 300 and 579 according to the FICO scoring model, or having a credit score between 300 and 499 according to the VantageScore model. If so, you’ll want to find a way to improve your credit score and push it between 580 and 669, or ideally past 670 (FICO), or above 661 (VantageScore).
If your credit score is poor by either or both of these criteria, financial institutions will likely deny your applications for credit cards, loans, and other financial benefits time after time. These institutions consider you a risk because your credit score indicates that you have made bad financial decisions in the past. For them, it means that you cannot be trusted because you may not be able to repay your loans or your balance.
However, again, there is a way to work things out if you are willing to work at it and focus on making better financial choices in the future. The first thing to do is get a free copy of your credit report and see where the problem lies. Sometimes the fault is not yours. People are known to have bad credit scores due to identity theft, credit card fraud, and similar cases where they have been taken advantage of by bad actors.
Whatever the case, you can start repairing your credit score — and with it, your financial reputation — by getting a credit card designed for people with bad credit scores. After that, you need to adopt responsible credit habits, including making your payments on time, staying within the credit range, and even making sure you don’t spend more than 30% of your limit.
Why is it worse to have bad credit than to have no credit?
So if both situations make financial services reluctant to work with you, why is it better to have a non-existent credit rating than a bad one?
The answer is quite simple. If there is no indication of what type of borrower you will be, it may mean that you are responsible for your money or you are not. If you have a bad credit rating, the financial companies have confirmation that you represent a risk for them.
In both situations, you are exposed to negative consequences, such as not being approved for a credit card or a loan. However, if your credit score is just non-existent, you can build a good one fairly quickly. If it is bad, the process will take much longer, because you have to prove that you can change your financial behavior, rather than just revealing it as good, but without any previous record, which is the case with the non – existing credit score.
Top 7 Tips for Building a Good Credit Score
Finally, we leave you with our 7 tips for building a good credit score, which will help you on your journey, whether you want to repair the damage done previously or simply start building a credit score from scratch.
1. Check your credit report
As mentioned earlier, your first step should be to identify what you did wrong. This way, you will know which areas you need to focus on and which part of your financial behavior needs to be changed. In fact, get into the habit of regularly reviewing your credit reports so you always know which areas need more work and dedication.
2. Become an authorized user
If you have a close friend or family member with a high credit score, you can try asking them to become an authorized user of their credit card. This way, you’ll share the benefits of responsible spending with the original user without having to be responsible for the bills. During this time, financial activity will be added to both of your credit reports, benefiting you.
3. Get a secure credit card
A secured credit card is a great way to dramatically improve your credit score in just a few months. It is similar to a regular unsecured credit card, except that you have to pay a deposit up front which will serve as security. There are a few other downsides, such as higher fees and fewer extra perks and perks, but secured credit cards are much easier to get by users with bad credit scores, and they can make wonders when it comes to fixing it. If you decide to go this route, here is a list of the best secured credit cards for you to review and choose from.
4. Make sure your bills are included in your credit file
Whether your credit score is low or non-existent, you can greatly benefit from paying your bills on time, but only if this activity hits your credit report. There are services that report your monthly bill payments to major credit bureaus, and you can easily use their services to boost your credit score.
5. Pay your bills on time
Our previous advice will only work if you are responsible for paying your bills, which means paying them on time, every time. Your payment history is responsible for no less than 35% of your FICO credit score, and you can suffer negative consequences if you miss even one payer. In other words, you have to make it a priority in order to benefit from it.
6. Keep your credit card balance low
Credit card issuers, as well as credit bureaus, frown on your maximum credit card limit. They like to see you spending only a fraction of your total limit, because that means you’re using credit in addition to other sources of income, not completely dependent on it. The rule of thumb is not to exceed 30% of your monthly limit, although in general the less you spend the better. Those who spend just 10% or even less usually have a much better credit score, so keep that in mind.
7. Don’t ask for too many new credits at once
Finally, we recommend that you do not apply for multiple credit cards. We know it can be tempting when your credit score hits the highs where possible, but it will have negative consequences, as it will force you to manage too many credit limits, and making a mistake will be that much easier. Not to mention that your credit inquiries from different cards will all be flagged, which will make you look bad in the eyes of the credit bureaus, and it will reflect on your credit report.
The bottom line
Through our research on the matter, we have concluded that having no credit is better than having bad credit. However, in the end both are severely limiting and they don’t work to your advantage. No credit is a little better because you get the benefit of the doubt, but that’s only helpful if you start building good credit right away.
If your credit score is bad, the road to a good credit score will be longer and more difficult, but it is still possible. One of the best ways to do this is to use credit cards for people with bad credit, but that won’t matter unless you develop good credit habits. So design a plan, get your cards, pay your dues on time, and you’ll start to notice the change very quickly.