Understanding Credit Scores and No Credit History
What is No Credit History?
No credit history typically occurs when someone has never taken a loan, used a credit card, or engaged in any credit activity. This means there is no financial history for lenders to evaluate.
How is No Credit History Different from Poor Credit Score?
No credit history is different from a low credit score. A low credit score refers to someone who has used credit but has not managed it well, such as missing payments, defaulting on loans, or using too much credit limit.
What is an Unknown Risk for a Bank?
From a bank’s perspective, someone with no credit history is considered an ‘unknown risk’ because they lack enough information to judge financial responsibility. In contrast, someone with a low credit score is a known risk due to negative patterns in their credit report.
What is the Score Range for Borrowers with Low Credit Score?
If you have no credit history, the credit report might just state ‘no history’ or ‘not applicable.’ This means you have not borrowed yet. If you have a low score, it will be somewhere in the range of 300 to 600.
Why Banks Prefer No Credit History
Banks tend to find it easier to work with someone who has no credit history because there is no evidence of risky behavior, unlike someone with a low credit score.
What is Better: No Credit History or Low Credit Score?
It is better to have no credit history instead of a low credit score. Lenders are more comfortable lending to those borrowers who have no credit history.
Disclaimer
THE PRIME NEWS NETWORKhas a tie-up with fintechs for providing credit, so you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. THE PRIME NEWS NETWORKdoes not promote or encourage taking credit as it comes with risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
Reference : https://www.livemint.com/money/personal-finance/how-is-low-credit-score-different-from-no-credit-history-key-questions-answered-11745849078997.html
