Is Having No Credit As Risky As Having Bad Credit?
October 12 2016 Posted by Colleen Macdonnell, AMP
Let's clear up one misconception, right off the bat: having no credit is not the same as having bad credit. 'No credit' simply means that your credit history - which tracks your loans and repayments over the years - is empty, and your credit score is '0' as a result. But having 'bad credit' implies a credit history tarnished by late or missing payments on your existing loans.
Why Bad Credit Is Risky
Rich or poor, urban or rural ... we all rely on credit to get the most out of life. And having poor credit affects your finances in many ways, all of them negative.
Poor credit can keep you from qualifying for a large mortgage on your dream home. It may prevent insurance agencies from offering you their lowest premiums. Even potential employers might pull your credit score (with your permission) when making a hiring decision. This is most often the case for positions with a high level of personal responsibility, especially around cash or finances.
Worried about your current credit history? Repaying your existing debts (if at all possible) is the best first action you can take, and your bank or credit repair specialist can help you with the more complicated steps.
Is It OK To Have No Credit At All?
Even financially savvy people are sometimes wary of opening lines of credit. After all, with thousands of dollars suddenly becoming 'available' to you, the temptation to overspend can be all too real. Why not just stick to cash, or to your debit card?
If you don't have any credit, you haven't necessarily made any financial mistakes. But here's the thing: Banks and other lenders aren't in the habit of simply giving away money. They need some assurance that they will be repaid in full (likely with a bit of interest to make the loan worth their while). Since nobody can see the future directly, these lenders have to make calculated decisions based on your credit history in order to decide whether you're trustworthy and responsible.
Show these lenders that you've consistently paid off your debts on time, and they'll be much more likely to grant you large loans (with more favorable interest rates) when you actually need them. Ultimately, playing by their 'rules' will open up new opportunities down the road - a much nicer home/mortgage, for example, or even just lower insurance premiums. These are things that you can't easily achieve without a good credit history.
Avoiding credit (and the temptation to overspend), might sound like a responsible choice on the surface, but it's not ideal in the long run. In fact, having a strong credit score is one of the smartest financial decisions you can make for yourself. And it's never too late to get started!