It is common knowledge that having poor credit history is undesirable for all types of reasons. However, lacking any credit history whatsoever can also be just as much of a problem as a bad credit history. Basically, having no credit history means that you have not borrowed any money from any lenders within the previous seven years. Most people do not realize that having no credit history can result in many of the same challenges caused by having a bad credit history.
Renting or buying a home
Having no credit history can make it difficult if you are in the market for your first home. It will be difficult for mortgage lenders to discern your level of financial responsibility since there is no credit history to scrutinize. Even if the mortgage lender somehow decides to accept your application based upon your income, your lack of credit history will likely result in higher interest rate payments for your mortgage. Therefore, you will end up having to pay more every month for your home loan. Basically, having no credit history does little to assure the mortgage lender you will be making your monthly payments on time.
Renting with no credit history
Most landlords nowadays will require a credit report before renting an apartment, condo or house to you. Of course, having a bad credit history will make it more difficult to find a place to rent. However, having no credit history can also cause a landlord to decide to deny your rental application. Just like with a home loan, landlords want to feel secure about your ability to manage your personal finances in order to pay rent in a timely manner every month. Also, the landlord wants to be assured you will be able to pay for any damages you cause as a tenant.
Even if the landlord does decide to accept your rental application, you will likely be required to put up a larger security deposit in order to rent the place. Therefore, it is a good idea to establish some type of credit history before you look for a place to rent. Perhaps you may want to think about taking on a small short term installment loan.
Lack of credit history may make you less hireable
It is not unheard of for an employer to run a credit report before deciding to hire a new employee. This is particularly true for executive or finance-related positions. In these types of positions, having a high level of financial responsibility is essential. Therefore, having a good credit history which demonstrates your ability to manage finances is important. Many times having no credit history can be a deal breaker for an employer.
Starting a business with no credit history
You may have an entrepreneurial spirit or a genius idea for a new product. However, you will likely need some money to implement your new startup business idea. This will likely require obtaining a startup business loan. The problem is if you have no credit history lenders will be wary of funding your project. Startup business lenders want to make sure they receive their return on investment. Essentially, they want to know that the business will be properly managed and that you will have the fiscal knowledge and responsibility to repay the loan along with interest.
Establishing a credit history
Now that you understand the various negative aspects of having no credit history you may be wondering what you need to do to establish a good credit history. Basically, you will need to take on some type of debt obligation and begin making regular monthly payments. Of course, make sure you are able to pay on time since having a bad credit history can be just as problematic as no credit history. This means you should only take on a small amount of debt in the beginning. One option would be to look at some options for a short-term installment loan. Your on-time payments on this loan will be reflected in your credit report, eventually resulting in a good credit score.