Is having bad credit better than having no credit history at all?
Or, is it the other way around – do you stand a better chance of qualifying for a credit card if you have no credit?
Both situations mean credit issuers will see you as somewhat risky, however, that doesn’t mean you’re stuck without a good credit card.
Whether you are starting with a relatively empty credit file or if you have had a few credit hiccups in the past, there are actions you can take to improve your credit score and work towards having excellent credit.
Find out what you need to know about the differences between bad credit and no credit and how each situation can impact you.
The Impact of Having No Credit
If you haven’t applied for credit in the past, you probably don’t have anything listed on your credit file.
There are currently over 16 million credit cards in Australia, and yet everyone has start somewhere.
In fact, everyone starts out with no credit history when they first begin managing their finances on their own so this is a natural status for everyone at some point in their lives.
You may also have no credit if you simply have avoided taking out any credit cards and haven’t needed a personal loan yet.
For example, if you still live in your parents’ household, you probably don’t have your name on any utility bills, and you perhaps haven’t bought a car because you take public transport or your parents gave you your first vehicle to drive.
Some people just prefer to pay for things with cash rather than credit so they can avoid paying interest – there are many reasons why you may not have built up a credit history yet.
While avoiding credit is one way to avoid debt, having no credit can make it difficult to qualify for financing when you do need it.
Because banks and other credit issuers have no track record to review, they don’t know how responsible you would be if you did have credit.
As a result, even if you have zero debt and haven’t missed a payment on anything, banks and other credit providers may still reject your credit card application.
How to Build a Credit History from Scratch
If you haven’t been able to qualify for a credit card or you’re worried you don’t have enough credit to be approved, don’t worry. You can start building a history right away.
The way to do it is to apply for credit cards designed for people with no credit, such as a card with a low limit or a secured credit card.
You can also take out a small secured personal loan. With a secured card or loan, you give the bank a security deposit for the amount of your credit limit.
When you secure financing in this way you won’t lose anything – you’ll get your security back. And, the bank doesn’t have to take on any risk for themselves, as the security provides mutual cover.
Once you build up a record of on-time payments, you’ll start having a credit history, your credit score will start moving up, and you’ll find it’s a lot easier to qualify for a more competitive credit card.
The Impact of Bad Credit
Different to having no credit history at all, when you have bad credit, there is information about past payments on your credit file, some of which indicates to potential lenders that you may not always pay your obligations on time.
This is more common than you might think. While more and more Australian are getting responsible and paying off their credit card balances each month, there are many who struggle to meet their obligations.
Bad credit can bring down your credit score and make it challenging to get a loan or a credit card when you need it. But, what goes down can just as easily go up.
When you work to improve your credit, you’ll be able to qualify for a credit card, as well as personal loans and even a mortgage in the future.
How to Improve Your Credit Score when you have Bad Credit
First, make sure you are up-to-date on your financial obligations and commit to paying all of your bills and credit cards on time.
If you are having trouble on your own, you can reach out to a credit repair professional for free financial advice.
It can take more time to improve your credit score when you are starting from bad credit vs. no credit.
However, with each on-time payment, you know you are on the road to having good credit and qualifying for a competitive credit card.
How to Find Out if You Have Bad Credit or No Credit
You can check your credit report with one of Australia’s credit reporting bureaus: Equifax, Experian, Dun & Bradstreet, or the Tasmanian Collection Service.
In fact, looking at your credit file periodically is a great way to help you manage your credit.
You can order a free copy from any of the credit bureaus every 12 months.
If there is no record of a payment history, you’ll want to start building your credit to make it easier to qualify for a credit card.
If you have any defaults or other issues, you can focus on fixing your credit score and getting professional debt relief help if you need it.
If you want help repairing bad credit and improving your credit score, get in touch with us today for a free assessment.