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31 Aug 2018

No Credit vs Bad Credit: What’s the Difference?

Unfortunately, it doesn’t take just bad credit for a lender to be unwilling to work with you. Good credit and bad credit can both be a deal breaker when it comes to lenders looking at credit scores.

While they may seem similar, the difference between building your credit score and damage control for bad credit are two totally different things, and trying to build your credit from these two perspectives can take some time.

Fortunately, with a few tweaks, your credit score can be back up to an optimal level in no time.

In this article, you will learn all of the differences between no credit vs. bad credit and everything you need to do to fix the two.

The Similarities Between No Credit Vs. Bad Credit

Whether you have good credit or bad credit, there is going to be a big fat question mark above any application that you fill out. No credit and bad credit both mean one thing- you don’t have good credit.

A lender wants to know that you will absolutely pay back the money that you borrow whether you are applying for a credit card or a mortgage. If you have no credit or bad credit, a lender probably won’t risk lending you any money. Whether you fall into either category, you should focus on raising your credit score.

The Difference Between No Credit Vs. Bad Credit

no credit vs bad creditIf you have no credit, it shows absolutely nothing on your credit history report, which also shows that you haven’t mishandled credit in the past. This simply means that you have not borrowed any money in the past seven years.

However, it also doesn’t prove to credit lenders that you can make your credit payments either. Being in this position makes it difficult to borrow money because lenders do not know if you are going to pay them back on time. If you do not believe in borrowing money or you have not had the chance to borrow money, this is the category that you will fall under. Many college students will fall under this category unless they have taken out a college credit card or student loans.

If you have bad credit, this probably means that you have mishandled your credit in the past. Whether you were late on a payment, a bill was sent to collections, you defaulted on a loan or you had your power turned off for not paying it on time, you can easily end up with bad credit if you are not paying attention to your payments.

This negative activity in your account will significantly decrease your credit score. In this case, you will need to build your credit score back up.

Building And Fixing A Credit Score

If you don’t have a credit score, you haven’t made any mistakes. This is a good thing that is easily fixable with time.

Secured Credit Cards

Luckily, whether you have no credit vs bad credit, there is such a thing as a bad credit credit card. You can start building your credit score by getting a secured credit card. A secured credit card uses a credit line as a cash collateral. Say you put $500 down. Then, you get a $500 limit on your card.

Eventually, you will get your deposit back once you can show that you can pay your bills on time. If you keep this up, your credit limit will increase without the need for a deposit.

Credit-Builder Loan

A credit-builder loan is a loan for those with bad credit. In fact, they are also referred to as “fresh start loans” or “starting over loans.” credit-builder loans are not usually advertised, and you can find them at smaller financial institutions such as a credit union.

A credit-builder loan is similar to a secured credit card in the sense that lenders are being conscientious about the money they are lending you. If you are approved for a credit-builder loan, a financial institution will deposit the money into a savings account for you. You will not be able to access this money until the loan is completely paid off.

This allows you to build your credit while the lenders have the assurance that you will repay them. If you make your payments on time, the lenders promise that they will send good credit reports to credit bureaus. That way, you can apply for a real loan or credit card. Make sure you are never past 30 days on a payment because this can significantly hurt your score.

College Credit Cards

You can also take out a college credit card to build a line of credit if you are a student. However, just being a college student does not guarantee you a credit card. Oftentimes, you have to prove that you are responsible enough for a college credit card.

The Credit Card Act of 2009 does not allow lenders to issue credit cards to individuals under the age of 21 without proof of independent income or a co-signer. If you are under 21 and your parents have good credit, this could be the way to go for your credit building journey.

You can find college credit cards that have plenty of perks such as cash-back, low-interest rates or sign-up bonuses. Make sure to sign up for a college credit card that promises to send your good credit score to all three credit bureaus: Equifax, Experian, and TransUnion.

If you are over 21 and still do not have proof of income, a college credit card may be difficult to obtain. In that case, revert back to a secured credit card to build or fix your credit score.

Which is Worse? Good Credit Vs Bad Credit

Neither good credit nor bad credit is an optimal choice in the war against good credit vs bad credit.

However, don’t assume that just because you have no credit or bad credit that you are doomed for life. There are plenty of ways to fix your credit score with a little time, patience and dedication. You will be approved for loans, credit cards and apartment complexes in no time if you implement these tips and tricks.

If you have any questions, please feel free to contact us about this topic.