No Credit or Bad Credit? Financing Your Next Car
There’s a general misconception that those with a non-existent credit history are better off than those with a bad credit history, especially when it comes to pursuing a car loan. Why is this a fallacy?
Neither are advantageous for the borrower! WHther you’re seeking bad credit car dealerships or dealerships that will work with those with no credit history, you’re certainly not going to find yourself in a good position. However, when it comes down to it, this is the credit situation that some find themselves in. Continue reading to understand the differences between the two circumstances, and maybe you’ll learn several ways you can improve (or establish) that credit score…
Understanding Bad Credit/No Credit
Some people may believe ‘bad credit’ and ‘no credit’ are interchangeable, but they’re actually quite different when it comes to securing a loan.
No credit means you’ve done nothing to even establish a credit score, whether good or bad. If you’re looking to buy a car, it’s unlikely that you’ve never opened a credit account or taken out a mortgage. Some young borrowers or senior citizens may run into this issue, but these problems are often circumvented by relying on a cosigner.
On the flip side, bad credit is based on how you’ve managed those credit cards or mortgage payments. Late payments will slowly knock down your score, as will the serious repercussions of these late payments (like foreclosure, repossession, or bankruptcy).
No Credit vs Bad Credit: What’s Better?
There’s one major similarity between the two credit situations, and it’s not positive. Whether you find yourself with no credit or a bad credit score, it’s a certainty that you don’t have good credit. Lenders aren’t going to look at either of these credit positions positively, and you won’t get as advantageous of a loan as somebody with, say, good credit. These creditors want to know that the borrower is going to be able to make consistent payments, and your credit (or lack thereof) will certainly give them a negative picture.
In regards to the differences, some may assume that no credit is better than bad credit. The logic is that these borrowers haven’t had an opportunity to prove themselves to creditors, making them less of a risk than those who have already proven to be unworthy. This is a reasonable sentiment, as creditors may be more willing to lend to these inexperienced borrowers. Of course, they might not even give you the time of day. If you have a non-existent or limited credit report, consider some easy tactics for establishing that score (which we’ll get to in a bit).
However, those with bad credit actually have something to work with. While your credit may be bleak, the creditors can still rely on some sort of information. While some lenders may automatically ignore those with no credit, they may still consider those with bad credit (although, you should expect less advantageous lending terms). Furthermore, if that poor credit score has been slowly improving, that can be indicative that the potential borrower is now more trustworthy.
How Do You Improve/Establish That Credit?
There are several ways that you can flip around your credit score, and you can use many of these tactics for establishing a report.
For starters, you should sign up for a credit card. Only charge purchases that you know you can pay back, and make sure you make those payments in a timely manner. If you make several purchases (and subsequent payments) a month, you’ll start establishing a positive (albeit, limited) score. Even if you’ve paid these cards off, it’s worthwhile to keep them around. When you close an account, the corresponding tick on your credit report will eventually disappear. If you’ve been relying on that credit card (and the corresponding account) to help boost your score, you won’t want to ditch it.
John Oldshue of LowCards.com also suggests pursuing rent-to-own furniture. It may seem like an odd route to take, but these businesses will actually report your monthly payments to the credit bureau, which will then be reflected on your credit report. Sure, you’re going to be dishing out some extra money to secure that furniture, which might not make much sense if you’re struggling for money in the first place. However, if you have some extra money to spend, you can go with this option to help improve and establish a credit score.
Overall, you’re going to want to minimize the risk of compromising your entire report. Don’t make silly purchases that you’ll be unable to repay, and don’t get lazy with your payments. There’s also no use obsessing or stressing over the entire process. Sure, buying a car may be scary, and it can be even tougher if you have a poor (or non-existent) credit score. If you follow some tips to slowly build up your credit, you’ll eventually find yourself with a solid score. They say there’s no use spilling over spilt milk. Instead of regretting some of your previous purchases, focus on the future.
And of course, you’ll always want to pay your bills on time. Late payments won’t make a huge impact on your credit score, but consistent tardiness will certainly be reflected on the report. Creditors will recognize your lack of consistency, and you’ll be less likely to grab an advantageous loan.
As we’ve mentioned, there’s no real winner between those with “bad credit” and those with “no credit.” If you’re looking to secure a car loan, I guess we’d side with those with “bad credit,” since they actually have a report that the lender can work with. Sure, the deal might not be great for the borrower, bust at least it’s a deal. There’s no guarantee that those with no credit will even get an offer from these creditors (assuming they don’t have a reliable cosigner). One thing is certain, however: it’s in everybody’s best interest – good credit, bad credit, or no credit – to follow the previous-mentioned strategies to help improve their overall score.