18 Nov Clearing the Confusion between Bad Credit and No Credit
Many people look at bad credit and no credit in the exact same way. However, the two are largely different, even with some similar effects they can have on one’s financial life.
Bad credit and no credit are often being mistaken for the other simply because they both affect one’s ability to borrow. For instance, if you were applying for a loan, you may be rejected if you had bad credit or zero credit. Additionally, even if you managed to get approved, you may be offered high interests.
This is because both situations lead lenders to question your financial capabilities, but the circumstances are a bit different. With no credit, you simply haven’t started getting credit yet, whereas with bad credit, you have acquired credit before but wasn’t able to manage it well. When you have poor credit rating, it is possible that you’ve had a lot of late payments in the past, carried lots of balances, or didn’t pay your creditors at all.
So how come having no credit limits your chances of getting a loan when you haven’t done all those things? It is simply a question of your experience. Just like when you are first applying for a job, the employer doesn’t know anything about you, your background, previous work experiences, and there’s nothing they could base their decision on. Often, you’ll be under probation first, with lower salary than those who are more experienced than you, and there’s a lot to prove before you become a regular. The same logic applies to getting credit.
That said, while lenders may reject bad credit applicants outright, you still have a slim chance of getting approved, just like if you were hired under probation. However, you won’t likely be able to enjoy the benefits that good credit customers have, like lower interest rates and friendly terms.
How to Obtain Good Credit Rating?
While the two can have very similar effects on your borrowing circumstances, each requires you a different approach to take if you want to improve your credit rating.
If you have zero credit, all it takes is to start getting one. This could be tricky however, like we mentioned above. But if you know the right places to look for, you stand a chance of getting a loan, under special conditions, and all you have to do is work hard to make sure that you pay right back on time. After that, you should continue to work on getting new types of credit and managing your repayments well.
On the other hand, the road can be bumpier when you have bad credit, but it is not impossible to overcome. However, instead of getting new types of credit, what you need is to focus on fixing old accounts that you messed up with. Pay overdue balances, limit new applications, and if your debts have become totally unmanageable, talk to your creditors and negotiate a more affordable repayment terms. Chances are it’ll cost you more time and money to pay these off, but it’s always better to do something than nothing at all.