Whenever you apply for a new line of credit, you always want to go in with the best possible credit score you can.
However, there are scenarios where you will have to apply with either no established credit history, or with a credit history that shows a few past mistakes. This leaves you at the mercy of your potential credit provider and their appetite for risk.
But which option is better? Having no credit, or having bad credit?
While obviously neither option is ideal, these two situations are actually quite different in what they present to your lender and whether they might approve or disapprove your loan. We’ve broken down what each option means for you and you potential credit. Read on to find out more!
No Credit History
The first option we will explore is the case of having no established credit history.
In this scenario, you have not held any forms of credit in the past, and thus the credit bureaus do not have anything to include on your credit file in order to generate a credit score. Generally, in order to develop a credit history, you will need to have a SIN number, a registered address and cell number, and at least one form of credit opened. This can be in the form of a cell phone account, a credit card, a utility account, a line of credit, or a car loan in Oshawa. Any of these things will trigger the creation of your credit file with the credit bureaus and will begin the process of building a credit score.
Almost everyone will go through this stage at some point in their lives, as they transition from teenager to independent adult. As a child and teenager, your parents like pay for your cell phone and utilities, meaning the accounts are in their names and you do not have a credit file yet. Once you move out on your own or begin paying your own bills, you will start to establish a credit history and build up your credit score over time.
Another scenario in which you might start out with no establish credit history is if you are a recent arrival to Canada. Credit histories do not follow you between countries; each country will have its own credit reporting standards and bureaus which makes international credit scores impractical. Thus, while you might have a well established and healthy credit score in your home country, once you arrive in Canada you will be starting from scratch again. On the flip side, if you credit history back home was not in the best shape, this is a great opportunity to avoid those past mistakes and build a fantastic credit history from the ground up.
Bad Credit History
The other option we will discuss is having bad credit.
Having a bad credit history means that you have an established credit history, but it contains several past mistakes that have resulted in a lower than average credit score. These mistakes are typically things like late or missed payments, defaulted loans, declaration of bankruptcy, or a high number of credit inquiries in a short space of time. Other, more nefarious reasons for a bad credit file could be due to identity theft, where someone steals your personal information and applies for many credit accounts in a short period of time under your name. This can seriously dent your score even if all of the applications were rejected. If one of them was approved and the thief managed to spend thousands under your name, your score could suffer even more.
Having bad credit is not an ideal situation, but it doesn’t mean you can’t get any credit applications approved. You will likely have to cope with higher than average interest rates, but there are definitely things you can do to improve your score and negotiate better rates in the future.
Which Is Better?
So now we come to the million dollar question – is it better to have no credit or bad credit?
This is a complex and nuanced question, whose answer will be highly subjective based on the credit provider you have applied to. An applicant with no credit history is an unknown quantity for any lender, as they have no point of reference for how the applicant deals with their finances. On the other hand, an applicant with bad credit can show them a history of financial dealings, but some of those might not be exactly encouraging for a potential lender if they see missed payments or defaults.
Either option is not ideal compared to having good credit, but it will be up to your lender to decide whether they will want to take the risk. Some lenders might prefer a clean slate applicant with no credit history that they’re willing to take a chance on. Others might favour seeing an established credit history, even if its a bad one. It will all depend on the lender and their specific lending criteria.
What can you do?
So what can you do if you find yourself in either of the above scenarios?
There are actually plenty of things you can do to move from no credit or bad credit into a good credit position. As with most things relating to credit scores, these techniques will generally take some time to be fully effective, but if you stick with them, you are sure to see significant improvements in your credit score and be able to negotiate better terms on your car loan in Oakville in no time.
Build your credit history
Establishing a credit history from nothing is fairly easy and will usually be a byproduct of your day to day life.
Everyone in Canada has a SIN number that identifies them for tax purposes while in the country. Credit providers and credit bureaus use this number to associate credit products with a specific person, so if you are newly arrived in Canada or just entering the workforce as a teenager, you will need to create a SIN at your local Service Canada. This is the first and most important step in building a credit history, is completely free, and can be done on the spot.
Next, you will want to open a credit account with a cell phone or utility provider. These two industries a generally considered essential, and will usually accept anyone applicant regardless of their lack of established credit history. This means you can get access to a cell phone or utility without a credit score, and by opening an account with your provider, be on your way to establishing a credit file.
Another good way to start building your credit is with a secured credit card. This kind of credit is designed for people with no credit history, and involves you first giving the lender the money that will act as your “credit”. For example, if you wanted a secured credit card with a limit of $500, you would first give the bank $500, and then you would receive a card with that limit. The bank as “secured” the initial amount of credit from you, and thus are more inclined to approve your application for credit. By keeping this account in good standing, you can quickly establish a solid credit history that will help you get a stellar credit score.
Improve your credit score
If you find yourself in the bad credit scenario, never fear. Repairing your credit is entirely possible and relatively straightforward as well!
First up, you will want to pay down as many of your debts as possible while remaining financially solvent and stable. Pick an aggressive but sustainable target for debt repayments and stick with it. Eventually you will be able to pay off your debts, and making regular, on time repayments is a great way to boost your score.
You might also want to consider keeping credit accounts with zero balances open to manipulate your credit utilization ratio. This ratio is the total amount of credit you have spent divided by the total amount of credit you have been approved for. If you have a credit card you don’t use that has a zero balance, that’s a whole extra bunch of credit that will be taken into account when looking at spending on your other credit accounts. The ideal ratio is 30% or less, so having that extra credit can help you reach that percentage easily.
If you are fairly confident you will be approved for a new line of credit, it can actually improve your score to go for it. Your credit score is directly impacted by new lines of credit opened, and by being approved for credit, your score can increase. You will want to be careful that you only apply for credit you feel you will be approved for, as the application process will usually ding your score slightly at the beginning. You don’t want to take that hit if you aren’t going to be approved anyway, so do so sparingly!
Another great option for repairing your credit is a bad credit car loan in Oshawa. If you have bad credit, you might struggle to get approved for a car loan with many lenders. Oshawa Bad Credit Car Loans specialises exclusively in subprime car loans, accepting all forms of credit with no credit or bad credit histories. Our dedicated car loan experts negotiate on your behalf with the big banks and always fight to secure the lowest possible interest rate for you. Once you have been approved, your regular payments will help repair your credit history and boost your score significantly. After a year of repayments, Oshawa Bad Credit Car Loans will help you renegotiate your loan with our extensive lender network to help secure a lower rate and save you money. Contact us today to find out more!