Which is Worse?
At some point, just about everyone needs to make use of their credit. Whether you want a credit card, an auto loan, or even a mortgage, your credit history will play a decisive role in determining your approval and interest rate. That’s why having no credit or bad credit can severely limit you financially. This begs the question, are you better off having a bad credit history or none at all? As you’ll see, the case could be made for both sides:
Bad Credit
Having bad credit does not necessarily mean you won’t be able to get approved for loans or credit cards. Unless your score has hit rock bottom, you should still be able to get approved, but it’ll come at a higher interest rate. Unfortunately, higher interest rates can cost you thousands of extra dollars over time, especially if you maintain high balances on credit cards. The other thing to keep in mind is that you still have the opportunity to repair bad credit. It may take months or even years, but everyone is capable of bringing their credit score back up.
No Credit
If you have no credit whatsoever, you may find it difficult to get approved for any type of loan or credit card. However, there are companies willing to take a chance on consumers with no credit, though it may come at a higher interest rate. If you’re having trouble getting approved for credit, see if you can get someone with good credit to co-sign with you. Remember that it’s easier to build up credit from scratch, rather than trying to improve bad credit.
Building or Repairing Your Credit
Whether you have bad credit or no credit at all, there are a variety of ways for you to start building up your score. Here are a few simple tips to keep in mind:
- Before doing anything, get a copy of your credit report from one of the major credit bureaus. Get your report even if you think you have no credit, because there’s always a chance that someone has been using your identity to open new lines of credit.
- With bad credit or no credit, one of the best ways to increase your credit score is to maintain low balances on your credit cards. Debt to credit ratio is an important factor in your credit score, so always try to keep your debt paid off.
- If you don’t already have a checking and savings account, open them now. Lenders typically see bank accounts as a sign of stability and will only help build credit.
- Still can’t get approved for a credit card? Apply for a secured credit card. With these types of cards, you actually deposit money into them and can only charge the amount you deposit. However, after a year or so, most lenders allow you to convert to an unsecured card.
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