• Phone: (714) 420-1997
    Email: vlong@uamco.com

  • Which is Worse: Bad Credit or No Credit?

    September 5, 2016
  • When it is time to buy a home, your credit history will have a strong impact on your ability to qualify for a mortgage. So, it is important that you are proactive in building a good credit score, to ensure that you qualify for the financing that you need.

    Bad Credit or No CreditThe Problem with Having No Credit History

    It is great to be debt-free, but you also need to consider that you might have a hard time with loan qualification if you don’t have any credit history. Most people have at least one line of credit to their name, typically credit cards or student loans. However, there is a small percentage of the population that has opted to pay in cash all the time, avoiding financing products altogether.

    While it is good to manage your money and avoid large amounts of debt, having no credit history can be more harmful than a bad credit score. The problem is that with no credit history, you are a mystery to the lender.  This “mystery” situation is often something they will not want to face.  Therefore, most banks and lenders require you to have a few open and “seasoned” credit trade lines – meaning 2 or more years of payment history on each.

    Why is it so Bad to Have No Credit?

    When a bank or lender is looking at your profile, they want to see that you can be trusted to pay back the loan. If they pull your credit score to see no history, then they have nothing to go on to determine if you are a good risk. As a result, you might automatically be categorized as a risky borrower, which means that the financial institution will be hesitant to give you money. For large purchases, like a mortgage, banks don’t want to have to guess whether you will pay back the loan or not.

    In comparison, a bad credit score will at least give the lender something to evaluate your credit worthiness. In this situation, although you might pay a higher rate than if you had a top tier credit score, you often can still obtain financing.

    We typically see the “no credit” issue come up with young adults who simply haven’t had time to build a strong credit profile.  If you are faced with this situation, a great place to start can be a secured credit card with your bank or perhaps co-signing on a car loan with parents.

    We do have experience working with all types of borrowers, including those with no credit scores. Whether you have bad credit, good credit, or no credit, we invite you to contact us today. Our team can help you learn more about the mortgage qualification process so that you can get the financing that you need: (714) 420-1997.