Having Bad credit versus no credit has been a debate among many people for a while now. Everyone has their own reasoning behind why they feel one is better than the other, but you might find it a little difficult to formulate an opinion on that if you haven’t personally experienced it.
I personally have been on both sides of the spectrum. On the one hand, having no credit works against you, because lenders look at you like you have no experience dealing with credit, and you will probably cost them money. On the flip side, having no credit can be looked at as a clean slate for you. Companies will think of you like a fresh start. If you start out with them, and like the services they provide, you will stick with them, becoming a loyal customer.
I kind of look at searching for a lender when you have no credit the same as applying for a job when you have no employment history. Most employers will deny your job application because you don’t have any, or enough, work experience. That happened to me several times when I first graduated from college. All I could think was, “How am I supposed to get work experience when no one is willing to hire me and give me the opportunity to gain experience?” I had that same logic when I tried to get a credit card with no credit…like how do you expect me to build credit if no one is willing to approve my request for credit? It was a very frustrating time, but I digress…all is well now!
Bad credit has it’s pros and cons as well; it’s somewhat 50/50. There’s a 50% chance you’ll get approved, in spite of your bad credit, but then there’s that chance you’ll get denied due to your bad credit. Having been on both ends of the bad credit/no credit spectrum, I can honestly say from experience that having bad credit is better than having no credit at all. You might have, or have had, better experiences with either of them, but one thing we will do is highlight the reasons why bad credit is better than no credit.
Still Shows History and Patterns for Lenders
Having bad credit may sound worse than what it really is. Bad credit gives you a financial footprint that having no credit can’t do. Lenders will be able to check your credit and see your payment history and various other factors that contributed to your bad credit.
Most of the time, people don’t have a lifetime goal of achieving bad credit. Bad credit usually is a direct result of being uneducated about credit or having some type of emergency where you needed the money right then, but weren’t able to pay it right back immediately, or as soon as you initially thought you could. For example, you could have been regularly paying on a loan, and on time, but your employer unexpectedly laid off certain departments, and your department was one of them.
Losing your job, your source of income is certainly a pathway that will lead you to bad credit. The fact that you were making on-time payments before you lost your job will give the lender you’re looking to apply with the ability to see that there was a consistency in payments with a particular company before it just stopped. That little bit of evidence of your payment history will play a huge role and be a big determining factor on whether or not you’ll get approved for a loan.
Can Still Qualify You For Loans and Credit Cards
Even with bad credit, you still have some financial options available to you. Those lending options might be slightly limited, but it’s better than nobody willing to lend to you at all! As far as a credit card is concerned, you’ll still be able to qualify for a credit card, but it’ll probably be a credit card for bad credit.
Depending on the card you go with, it will more than likely have a higher interest rate, and a lower credit limit, but hey, at least you’ll have a credit card to provide you with extra money. It’s one of those things where you have to pick and choose your battle: would you rather have no extra money at all, or be okay with having some extra money and working with the higher interest rate, and lower credit limit? Plus, these cards give you the opportunity to repair your credit as well. If a lender sees that you’ve been responsible with your credit, they may give you the option to increase your credit limit. If you’re ever unsure about how your credit card works, read your credit card agreement.
The same theory applies for loans as well. If you have bad credit, there are loans for bad credit available to you. You have the convenience of getting the money right then, plus, when you repay the money lent to you, there is no second guessing when or how much you owe, from month to month, because it’s at a fixed rate.
Helps you Identify Areas for Improvement
As mentioned earlier, having bad credit gives you a financial footprint, which makes it easier for you to look at your credit report, see where your problem areas are, and fix those problem areas. Even if your credit is bad, you have a reference point. That financial footprint is essentially the treasure map on your voyage to good credit.
Now, depending on the steps you want to take to repair your credit, a lot of people will pay off the items on their credit report with the lowest balances, and then work their way up to paying the items with larger amounts. Repairing your credit this way, makes it a little more manageable financially, because you’d be gradually be making bigger payments, and can pace yourself, versus trying to pay these items off all at once.
Additionally, with bad credit, you do have an established history (even if it’s not a good one). Those with no credit can have just as hard, if not more difficult, of a time increasing their scores, because they’re starting from scratch. Since your financial history accounts for 35% of your cumulative credit score, it can, in fact, be easier to fix problem areas, so that your bad credit becomes a sad chapter in a long book, versus a person starting off with a blank page.