No history is worst than bad credit history

We all know people who always want to pay cash and they refuse to have any debts. “Having no debts is the first step to be rich” they say. They might be right when we look it on an interest charges point of view. However, at one point or another, these individual will have to fill in a credit application for a car purchase or a mortgage.

The thing is that credit is based on trust. And trust is gain through a series of positive experiences with one individual. Would you get married with someone you met yesterday even if it’s “the love of your life”? Credit relationships with banks work exactly the same.

The very first thing that a financial institution will do when you apply for credit is to look if you are credit worthy. In order to do so, they will pull out your credit bureau. If you never had a credit card and no other credit experiences as such, it’s like you don’t exist in the banking / credit system.

Having a positive balance in your banking account and paying your utility bills on time is completely useless for credit reporting agencies. They will only look at credit cards, lines of credit, personal loans, leases and mortgages.

If you had a bad credit experience, at least your behaviors are recorded and you can always try to explain your credit misbehaviors. When you don’t exist in the credit bureau, you can’t explain much!

No banks will accept to trust a complete stranger. Therefore, you should seriously consider applying for a small credit card (i.e. with a $500 limit) and use it once in a while. You don’t even have to pay interest charges on it as long as you pay your credit card statement on time when you receive it.

This will at least show some credit record when you apply for a bigger loan and you will have the possibility to earn points and rewards at the same time.