The risks you take on making financial choices can have a great impact on your financial stability and your financial future. If you are not averse to taking financial risks, you may have availed of a loan, a credit line, or a first-time mortgage. If you are averse to risk, however, you’ve probably avoided such credit products and you have no credit history. Your credit report is empty.

Having no credit history means that you have not taken out a loan and do not have any experience in paying back debt.  This also means that you have not established any track record when it comes to being financially responsible in terms of paying back what you owe.  As far as financial institutions are concerned, however, potential borrowers who have credit histories are considered to be more acceptable, thus, their approval rate is higher.

People generally believe that bad credit is worse than no credit.  While it’s not a good idea to have a bad credit history, having no credit history to indicate experience with debt actually has more negative implications.  A bad credit history will give the lender a more accurate picture of how the borrower handles his financial obligations.

No Credit History

There’s nothing to work with on an empty credit report. You’ve never had a credit card and you have never borrowed money. By avoiding credit or just playing safe, you are not able to prove that you can pay a loan in a timely manner. Lenders will take a bigger gamble on you since there’s very little information available to them to evaluate whether or not you can be relied on to meet your obligations.  In some cases, having no credit history can actually prevent you from getting a loan.


Bad Credit History

If you have dealt with debt and may have availed of credit cards, loans, or lines of credit, you should already have a good understanding of the process of repayment.  Although you might have missed payments in the past to cause your bad record, your lender could simply decide to put some limitations or to include stricter terms so as to mitigate their risks.

Credit Reports in a Nutshell

Credit reports contain vital information like partial or late payments, previous payments, past debts, and whether you have borrowed money in excess, to close to credit limit, or if you have filed for foreclosure or bankruptcy.

If your payment history is negative, you may have a lower credit score; if you have a positive payment history, your credit score may be higher. With a low score, however, creditors can still use your credit history and experience as positive information. With a bad credit history, you can still get a loan, although with an interest rate that’s less favorable to you.

Building or Improving Credit History

It is important to build a positive credit history to qualify for any future mortgage or loan, especially if you want the lowest interest rates.  You can improve your credit history by:

  • Getting a credit card. Consistently use it and make full and timely payments.  Be careful not to max out your credit limit at any given time.
  • Check your credit by requesting for a copy of your credit score or credit report from Equifax or TransUnion.
  • Don’t terminate old credit card accounts and do not get too many new credit cards.
  • Try to diversify your credit portfolio.  Aside from credit cards, you might want to avail of other types of consumer loans such as a personal loan, an auto loan, or any other short-term loan that you can afford.  This may improve your credit score.
  • If you already have bad credit, you can pay off any remaining bills.  Stop using your credit card until you can control your debts. After that, work to consistently make timely and full payments.

Credit products can be your lifesaver in times of financial need.  You have to understand, however, that it’s a big responsibility that you should not take for granted no matter how small the amount you owe is.  Build a positive credit history.  If you have a bad credit history, strive to get back above the red line.  Whether you have a bad credit history or no credit history at all, you are not likely to get the best offers on loans and other financial products