Bad Credit or No Credit… What’s Worse?

Filed under: Credit Issues

We’ll all met that occasional person who loves to make it known that they have no debt whatsoever.  In fact they don’t even own a credit card, have no car payment, and have never needed to borrow money.

Credit Report ConceptYes, it’s rare, but it does happen!

Usually, it is a younger adult who primarily pays cash for things they need, has a bank account and a debit card, but has never really needed to establish any credit.

Amazingly enough, when a credit report is pulled, these people can literally have no credit score.  There truly is not enough credit history to generate a rating with the credit bureaus.

This can cause quite a problem when the person sits down with a lender and wants to obtain financing for a home.

Here’s the problem…

If you have bad credit, at least there is something there for a bank to evaluate and measures that you can take to repair the bad credit and begin building good credit.  Don’t get me wrong, bad credit isn’t ideal, but at least you’re on the map.

No credit, on the other hand, means that you are a big guessing game to a lender.  They have no way of evaluating your risk and many lenders will not consider borrowers without sufficient lines of credit established.

So if you are over 18 and haven’t begun to build a credit history, or if you have adult children who are under the age of 25, now is a great time to begin thinking about building a credit history.  It takes time (years in fact) to create a solid credit profile so start early, don’t overuse or max out credit lines, and above all else make monthly payments on time.  (You really don’t want to have new credit AND bad credit!)

A secured credit card is a good way to start or perhaps a car loan where a parent co-signs with the child.  Many banks also have credit card programs for teenagers and young adults, you just need to inquire about it.

If you see yourself purchasing a home in the near future and are worried that you may not have sufficient credit established, feel free to give me a call and we can set you on a credit path that can lead to home ownership!

Franklin Loan Center | NMLS 237653
Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, 4131316
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