Friday, 14 October 2016 17:35

Bad credit? No Credit? Which is worse?

People say that having no credit is as bad as having a bad credit score. Is this true, and if so, why?

We’ll have a look at what they both mean and what they, more importantly, mean for the average person looking to get a loan.

Put simply if you don’t have a credit score, this means that banks and other lenders cannot gauge what kind of borrower you are. They can’t figure out whether you are a good investment or not. This doesn’t necessarily put you in the same bracket as someone who has got a bad credit score – as you may never have done anything negatively to affect that score – but neither does it give these establishments any idea as to whether you are reliable or not and will repay any monies borrowed. With this in mind, if you haven’t got yourself any kind of credit score you will find yourself in the same predicament as someone with a bad credit score. You will find it difficult to get loans or be approved for mortgages etc.

Many people find it difficult to understand how someone can’t have a credit score, especially in this day and age where the majority of people have loans and mortgages. In actual fact it is quite easy, especially if you are a young person or someone who is retired.  The latter group never took loans out for anything; a lot bought their houses cash and never had a need for loans so they won’t have any kind of credit score. This segment of people is a good example of why it is important to build up a credit score. They haven’t done anything to show that they wouldn’t be trustworthy when borrowing cash but will still find it as difficult to borrow money should they ever need to because they haven’t built up the all-important credit score. A credit score is like a trust contract to a bank or other lender.

So what should they/you do? Even if you don’t need to borrow money or take out a contract, do it. Even proving that you can keep up with repayments on a mobile phone contract or any other similar operation will only be of benefit when it comes to getting credit. A credit card with a low limit is something to think about too. So long as you pay it off, this will help a credit score no end as will a car loan. Even if you can afford to buy the car cash, take out the loan, pay it off monthly and build a good credit score whilst you’re at it. 

It may same like a farcical operation and in a lot of instances it is a little unfair, especially for people that have never put a foot wrong and then are refused a mortgage because they have never had the need to take a loan out – unfortunately though, it’s hoops that have to be jumped through.