Home » Financial Education » No Credit History Is Worse Than Bad Credit

No Credit History Is Worse Than Bad Credit

No Credit History Is Worse Than Bad Credit

*Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

This article was last updated Feb 20, 2013, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

Are you one of those people who avoid credit at all costs, just to save yourself from debt? If so, you may very well be considered a wise money manager. With this in mind, your savvy saving practices may not work in your favor over time if you ever need a line of credit. Having never used a credit card or borrowed money from a bank may put you in worse shape than someone with terrible credit.

If none of this makes any sense to you, we may need to break things down from a creditor's perspective. They see the situation a lot differently than you might, and that is why they usually give preference to those with some sort of credit history. Here is an overview of why you may want to start building your credit.

The Problem with No Credit

 

In this day and age, we live in a debt culture that is based on excessive borrowing habits. Lenders routinely base decisions on the track record of your credit history. Not having any credit history because you have neverDetective needed to borrow money may be a fantastic testament to your character and to your ability to make wise financial choices, but it also means you are a total mystery to credit card companies and credit bureaus who rely on credit history.

To them you are like a person who cannot explain where he or she has been for the past 10 or 20 years or what you have been doing with your life. You probably wouldn't go out on a date with someone who could not answer those kinds of basic questions, nor would you rent to him or hire him to work for you. In the same way, those who depend on credit scores to evaluate your ability to pay back borrowed money will not want to enter into a relationship with someone who has no history. Most of them would prefer to hire someone who has lousy credit, but a good explanation for their credit problems. You won't be able to qualify for much of anything due to lack of credit history.

How to Safely Build Credit

To avoid this kind of ridiculous and paradoxical problem, talk to your banker about ways that you can establish credit without compromising your principles or risking your money. For instance, you could put money on a credit cardprepaid card and use it like a bank card. Keep paying back your balance after you use it and you will slowly build up credit. You could also put money into a CD and then use the CD as collateral for a loan. You risk nothing if you miss a payment because the money is just taken out of the CD. Yes, you will lose something in interest this way, but the trade off should be well worth that.

Once you create a documented paper trail of your excellent credit history, your creditors will be able to verify and validate the fact that you are trustworthy, reliable and capable of handling your money well. These are the qualities lenders look for that can improve your future lending opportunities.

* Editorial Note: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are the author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program.

*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.


Recommended Posts:

Read More

How I Raised my Credit Score 100 Points in 30 Days

Checking your credit score on a regular basis is a key part of maintaining your financial health. Free credit report services like myLendingTree make tracking your credit score month-to-month easier than ever. Not only does myLendingTree make tracking your monthly credit score easy, but you’ll also receive insightful tips into how you can improve your […]

Read More

March 7, 2014

Read More

Payment Patterns Can Impact Your Credit

These days the major credit reporting agencies aren’t just satisfied looking at whether or not you make your payments to creditors on time. They are also factoring in patterns of behavior, such as whether or not you like to carry a balance on your credit cards and how long it typically takes you to completely […]

Read More

December 10, 2015