No Credit v Bad Credit

By Morgan Saylor

If you’re preparing to buy a house, you’re probably taking a good, long look at your credit history – or perhaps lack thereof. While it may be hard for some to believe in a world where many of us have a healthy amount of student, auto, and other loan and credit card debt, there are people out there who have no debt at all!

Having never acquired credit balances is certainly one way to avoid debt. However, having zero credit may create more hurdles when it comes to your credit score proving the affordability of a monthly payment – be it a house payment, car payment, or otherwise. Having no credit means you’ve done nothing to establish credit history, according to trulia, and with no credit history, creditors have no way of knowing how well (or how poorly) you will pay back a loan.

A bad credit score at least gives a lender somewhere to start! With a bad credit score, a financial institution can deduce from your habits enough to determine an interest rate – although the nature of having bad credit typically means you are risky to lend to and the rate you end up with may not be the best.

There’s good news, regardless of which side of the fence you’re on, be it team-no-credit or team-bad-credit. If you don’t have credit, establish it! Consult a financial advisor about how best to go about establishing credit. Educate yourself on healthy financial practices, such as making credit card payment on time. If you have bad credit, you can start repairing the damage now. Check out our Understanding Credit guide, which is full of information about your credit score and how you can work to improve it! 

Tags: Credit Report, Credit, help, bad credit