Forum: money.stackexchange.com
Tags: <credit><credit-history>
Title: Is it true that it's better to have bad credit than no credit?
Question: There's a popular saying:   It's better to have bad credit than no  credit.   Is this true?

Answers:
sents: text: There are flaws in the risk models regarding no credit status.
text: They don't take into account the fact that someone who lives in society and responsibly meets their obligations for years is more likely to pay off loans than someone who has no history of paying off their loans.
text: People with very poor credit will still be able to get some RTO and auto loans, but they pay high interest, and the lender expects collateral property to have value when it's repossessed.
text: Initial credit is not that difficult to obtain if you plan and put some time into it.
text: A cell phone contract, utility bills and bank accounts (especially those overdraft "accounts" that you should opt out of) are ways to establish credit without a credit card.
text: Secured credit cards should be more than sufficient to establish credit within a few years.
text: A No Credit standing can be verified at annualcreditreport.com , and should be checked whether you believe you have credit or not because of identity theft concerns.
text: In summary, it's only better to have bad credit if you want to get a small, high interest loan right now.
text: That's a good way to be even more in debt, and pay lots of money to creditors rather than yourself.
text: If you are patient, good credit is easier to obtain than repairing really bad credit.
text: Either way, you won't be able to get a mortgage for a few years.
answer_details: author: money.stackexchange.com/users/931/SpecKK
score: 12
sents: text: This sounds counter intuitive to me but this is the best answer I found.
text: Bad credit is better than no credit.
text: Bad credit means that you were extended and trusted at one point.
text: Bad credit score could also mean that you're paid off, but the bad history of the past is still weighing your score down.
text: Depending on your current credit situation, you'll probably get extended another loan or card...
text: your rates will stink, but you'll get one.
text: Also, bad credit shows that the application you filled out is probably not filled with any fraudulant information and they will have some way of being able to get a hold of you.
text: NO credit is riskier for creditors because they have absolutly NO track record to what the person's character is.
text: With no credit or anything on your report, how do they know that none of the info on the application is good or bad?
text: Someone with no credit is going to have the higher interest rate from the beginning.
text: Higher risk =
text: higher interest rate...
text: the same with every investment, the higher risk of loss you possibly face, the higher return you want on the investment.
text: No credit record equals a higher risk of loss.
text: Source:
text: Yahoo answers
answer_details: author: money.stackexchange.com/users/965/mpenrow
score: 4
sents: text: From my limited experience, I would say yes.
text: My justification for that has to do with data I've analyzed from Prosper.com (a p2p lending site).
text: They grade borrowers on a scale as follows - AA,A,B,C,D,E,HR.
text: They also used to have a "NC" grade for people with no credit.
text: The "NC" graded loans were the worst performing group, even worse than "HR" (score below 600 or so).
text: Assuming other lenders have the same experience, it would be reasonable that they would treat people with no credit as if they have the worst possible credit.
answer_details: author: money.stackexchange.com/users/894/Eric Petroelje
score: 4
sents: text: With regard to Plus loans (school loans in the US backed by the government) No credit is better than bad credit.
text: They require that you do not have an "adverse credit history" How do Federal Student Loans use Credit Scores?
text: The Stafford, Perkins and PLUS
text: loansdo not depend on your credit score.
text: The Stafford and Perkins loans areavailable entirely without regard toyour credit history.
text: The PLUS loan,however, requires that the borrowernot have an adverse credit history.
text: (Undergraduate borrowers whose parentsare denied a PLUS loan will beeligible for increased unsubsidizedStafford loan limits.)
text: An adverse credit history is definedas being more than 90 days late on anydebt or having any Title IV debt(including a debt due to grantoverpayment) within the past fiveyears subjected to defaultdetermination, bankruptcy discharge,foreclosure, repossession, tax lien,wage garnishment, or write-off.
text: Itdoes not otherwise involve your creditscore.
answer_details: author: money.stackexchange.com/users/815/Alex B
score: 4
sents: text: I think the answer may change based on a person's net worth.
text: If you have money in the bank, andnever borrow, you could have nocredit but you wouldn't need it.
text: Inthat case no credit is better thanbad credit.
text: If you need to borrow then I couldbe convinced a bank would prefer tohave any history, even bad, overnothing at all.
text: This is because mostbanks let computers make lendingdecisions instead of people.
text: With nodata to use for the risk assessmenta computer can't provide an answeron whether to make a loan.
text: In thatcase bad credit may be better thanno credit.
text: I'm assuming that a lender might make a high risk loan over a loan with unknown risk.
answer_details: author: money.stackexchange.com/users/837/Ed.T
score: 2

Summary of the answers:
Bad credit is better than no credit if you need a small, high interest loan. A bank would prefer to have even bad history, than nothing at all. 
The answer to this question is subjective and will probably depend on your net worth and the type of loan that you're applying for.