Which Is Worse? No Credit or Bad Credit?

The key in the door lock close up

It’s no secret that bad credit can get in the way of buying a home. But bad credit isn’t the only credit problem people face. No credit is another hurdle altogether.

If you’re lucky enough to be debt free and have successfully steered clear of credit cards you’ll unfortunately find that your house buying process comes to a dead stop when you go to obtain a loan.

It’s not a bad way to live life- debt and cc free. However, building your credit means that you need to take advantage of these things you’re trying to avoid.

Why is no credit bad?

No credit can be more troublesome than bad credit. This is because bad credit is already established and can be improved. Having no credit means that you’ve done nothing to establish credit. With no credit score, a lender doesn’t know how well you handle your finances and how trustworthy you are.

Not to say that you aren’t a well-established, hard-working individual. After all, you’ve been fortunate enough to stay free from debt!

Here’s the bottom line… Lenders don’t want to guess. They want to know, without a doubt, that you’re going to be able to pay back your loan.

Even bad credit gives lenders something to work with. Though it does show that you’re likely more of a liability, it still gives the bank an overview of your financial habits.

Here it is… it may be worse to have zero credit than to have bad credit.

Now, we’re not encouraging bad credit. Nor are we saying that you can get the loan you need with bad credit.

So, because good credit is what you need to get the right loan, with the right interest rate, let’s talk credit responsibility.

Plan ahead. Credit can’t be fixed overnight. It takes a bit of time to fix a less than impressive credit score.

If you have debt, pay it off.

If you’ve been avoiding debt and have no credit, go to your bank and apply for a credit card. Through your bank you can connect your credit card to your checking, making it easier to pay the card off.

Be consistent with your credit spending. A spending pattern will help you stay on track.

And whatever you do, don’t close old credit card accounts as this will affect your credit history’s age.

Finally, carry a low amount of debt.

It takes time to both establish credit and fix bad credit, but it’s worth it in the end.