Is your credit history a blank slate? Probably, if you’ve never had a car loan, a student loan, or credit card, it likely is. You may pride yourself on having no debt, be debt-averse, or you simply prefer the convenience of cash. But having no or too little of a credit history can keep financing significant purchases or financial milestones out of reach.
On the flip side, what if you have credit history — but you’ve made a few missteps? A credit history revealing missed payments or high debt makes you less attractive to lenders, creditors, and possibly even future employers. Whether you have no credit or bad credit, each scenario poses its own challenges. Here’s a closer look at the consequences of having no credit versus poor credit.
No credit, no problem? Not really.
It might seem like everyone you know has one or more credit cards or is paying off a loan. Yet 26 million Americans are “credit invisible,” meaning they have no credit. Another 19 million are considered “unscorable” because their credit history is insufficient or not recent. A recent Bankrate survey reveals that more than half of people between 18 and 29 years old don’t have a credit card.
Staying off the credit radar may seem like the safest choice, but it’s not always in your best interest to be “credit invisible.” Your credit report — your history of current debt, outstanding loans, and payment history, compiled by the three major credit reporting agencies — reflects your ability to pay bills on time and manage debt. Without this snapshot, lenders and creditors have no way of gauging your creditworthiness—your ability to borrow money and pay it back.
Increasingly, credit isn’t an option — it’s becoming more of a necessity for the milestones and modern conveniences you take for granted, like buying a cell phone or car.
When bad credit bites
Being late on the rent or not paying down your credit card debt may not seem like a big deal, but an accumulation of late or missed payment dings can really start to weaken your credit history. A tarnished credit history makes it harder to secure your financial goals down the road. It can even impact your career goals.
Negative actions like late and missed payments, carrying high balances and loan defaults are all reflected on your credit history and could lower your credit score. A less than stellar credit report and low credit score indicates that you’re more likely to be a risky borrower. A car loan, apartment, or cell phone might still be within reach, but you’ll have to jump through more hoops and pay more as a result.