Not having a credit score and having a bad credit score are some of the worst financial positions you can find yourself in. Both situations can prevent a landlord from renting you an apartment or may dissuade a creditor from approving you for a loan. Simply put, both situations negatively affect your creditworthiness. To get a clearer picture of each issue, here is the difference between no credit and bad credit.
Having No Credit
Having no credit means there isn’t any information to judge your repayment abilities. Such information is supposed to be reflected in a credit report. Hence no credit translates to not borrowing money in the last 7 years- the time it takes for a credit report item to be removed.
Having Bad Credit
Bad credit means that on a scale of 350-850 points, your score is near the 350-point mark. This happens when you mismanage your credit by being late or missing monthly payments and defaulting.
The Differences
Fees That You Will Be Charged
When you don’t have a credit score you will get charged deposit fees when opening an initial account with creditors. On the other hand, with bad credit, you may not be charged deposit fees. However, when opening one, you will be scrutinized through a bank-specific version of a credit check.
Electricity, phone, cable, and other utility companies also investigate your credit during the application process. A bad credit history attracts a security deposit in order to establish service in your name. Without a credit score, you may not incur such fees.
Chances of Getting a Loan
Each creditor is different, some will allow you to get a loan without the need for any credit history while others will refuse. For young people –just out of college, you might be approved credit on the condition that you have a stable job. On the other hand, with bad credit, you may qualify for a loan but with strict unfavorable terms, like high interest rates.
It is easier to get a cosigner when you have no credit than when you have bad credit. Any person looking to be your cosigner, will look at how you repay your debt. This is because if you default or skip payments, their score takes a dip too. Another disadvantage of bad credit is that you may qualify for a lower amount and higher rates than a person with no credit score.
Ease of Building Your Score
With no credit, building your credit score is easier compared to fixing bad credit. Bad credit means that you are working from a bad debt management and repayment situation with different lenders. However, when you have no credit, you are working from a level ground where past financial mistakes don’t influence your score.
Bad credit can be good if there were mistakes when it was being calculated since it can be fixed, which will see your credit take an upward bump.
Career Goals Influence
Having no credit is better than having bad credit when it comes to influencing your career path. Prospective employers check credit scores. They are more likely to accept a young prospective employee who has no credit than a person with bad credit.
Impact over Time
The impact of bad credit changes over time and terms become favorable with good debt management. Similarly, bad credit could continue lowering your score if left unchecked.
If you miss payments or default, this information remains on your credit report for a whole 7 years from the date that the incident was marked. This will surely affect some of your financial actions during this time.
The impact of no credit doesn’t change over time. Without a score, there is no damaging financial information to worry about. However, your options when it comes to credit will be very limited.
Conclusion
The above information highlights the main differences between a lack of credit and having bad credit. It also goes further to explain how each scenario affects your finances plus how to deal with each situation.
