Bad credit and no credit are two terms that get used often, sometimes interchangeably with each other. These two credit statuses are not the same, though. While both can make it difficult to get approved for a loan or a credit card, it’s for different reasons. It’s important to be aware of the differences between bad credit and no credit, and know the best path to good credit from each.
No credit means you have nothing on your credit report. You haven’t borrowed any money in the past or paid any bills, such as utilities, in your name. Many companies use credit history as a predictor of the borrower’s ability to make on time payments. If you have no credit it may be difficult to work with these companies because they see this status as a potential risk. Some other problems you may run into with no credit include:
- Difficulty getting approved as a tenant
- Paying higher utility deposit
- Fewer options for emergency expenses
- Higher interest rates if you ever do take out a loan
While there may be difficulties that come with having no credit, that also means you have yet to make any financial mistakes. This makes it easy to get on the credit radar and work towards good credit.
Ways to Start Building Credit
- Secured Credit Cards: Credit cards backed by a security deposit
- College Student Credit Cards: These are easy to qualify for if you have no credit because they’re made for young adults just getting started.
- Credit-Builder Loans: This holds the amount borrowed in a bank account while you make payments, to build credit. You get the money when the loan is fully paid off.
- Authorized User Status: You can use someone else’s card in your name, but you are not the primary account holder or responsible for the payments. It’s best to choose someone that has good credit as the primary account holder.
- Co-Signer: Whoever signs off on the loan with you is responsible for paying it off if you fail to do so.
There are many factors that could have attributed to bad credit. The most common reasons for bad credit are late payments, getting too close to your credit limit, letting an account go into collections, and bankruptcy. Negative activity lowers your score and makes it difficult to qualify for good interest rates or loans in the future.
Bankruptcy or foreclosure will cause your credit score to be very low and will stay on your credit report for at least seven years. It doesn’t mean you won’t be able to borrow money, but it’s likely your interest rates will be higher.
A common misconception about having bad credit is that you won’t be able to get approved for any financial services. There are actually many companies that are still willing to work with those with bad credit. When finding these companies it’s important to ensure they’re reputable, reliable, and the best fit for your financial situation. You can learn more about bad credit loans from TLC here.
Improving Bad Credit
Repairing bad credit takes time. The best way to get started is by catching up on any late payments and continuing to stay on top of them from here on out. You should also request a credit report from each of the three major credit bureaus. Check the reports for any errors. Common mistakes include incorrect addresses or other personal information, outdated information, and duplicate debt. Each of these mistakes will negatively impact your credit score so you should report it immediately if you discover one. You can dispute inaccuracies online, but you have to do so for each bureau separately.
Lowering your credit utilization ratio is another factor that can help to increase your score. If your issuer allows it, making more than one payment at a time is a way to keep your balance low. Increasing your credit limit is an immediate solution, but it’s important to not spend more after you do so. It’s best to not apply for new cards or cancel old ones during the process. Having balances on many accounts reflects negatively on your credit, but simply having more available credit in total is a positive.
Personal Loans with TLC
Using a personal loan to pay down your debt adds installment credit to your report, rather than revolving credit. Installment credit is a loan for a fixed amount and the borrower agrees to make a set number of monthly payments for a specific dollar amount. The repayment period can last from a few months to a few years, until the loan is paid off. Installment credit is a positive on your credit report, as long as you’re diligent about making payments.
At Total Loan Company the loans we make are as individual as the people who apply for them. If you need a personal loan, we can help. Application is quick and painless, and there’s no need to worry about secret or hidden costs. With TLC you know exactly what you pay with fixed rates and absolutely no extra fees. You are with a reliable company that has 24/7 customer support and data protection.