A bad credit rating is a stain upon your financial record that can persist for years. It is possible to remedy the situation, but it takes time. Unfortunately, sometimes you need an auto loan now to make a car purchase. If, however, your credit is bad, you will have difficulty receiving a loan on favorable terms. Other potential borrowers may have no credit history. They too may have trouble securing a loan. Although both are unfavorable positions to find yourself in, having no credit is by far better than having bad credit.
Having no credit means exactly that. There is no record of you having anything involving credit in your name. Whether it is a credit card, charge card, auto loan, student loan or utility bill. Without credit, you may find it difficult, if not impossible to receive a car loan without a co-signer. If you can find a responsible co-signer with good credit, many lenders will approve your loan application. Otherwise, it is up to you to build your credit rating from the ground up. Usually by starting small and applying for a low balance credit card.
The good news is that by having no credit you are in no way stained by poor financial decisions in your past. Your financial history is a clean slate. After you have built up your credit worthiness over time, provided you make regular on-time payments, most auto lenders will want to lend to you.
Having bad credit means that you have made enough poor financial decisions to besmirch your credit rating. This could be a combination of defaulted loans, late payments or missed payments, among other things. If you have a bad credit rating, you can repair it, but it will take time. In terms of getting an auto loan, though, having bad credit puts you at the bottom of the list of applicants. Even those people with no credit have a better chance at getting approved for the loan. There are such things as bad credit auto loans, but you pay for it with high interest rates.
Bad Credit or No Credit: Which is Worse?
Categorically speaking, bad credit is worse than no credit because a potential borrower with bad credit indicates to the lender that they have had a chance to prove their credit worthiness but shirked their responsibility. A person with no credit, because there is no record on file, has yet to prove to creditors that they are creditworthy. Both situations lend themselves to remedy, though. A person with no credit can start to build their credit by applying for a credit or charge card. By making regular on-time payments they will slowly prove their worthiness and build their credit score. A person with bad credit, on the other hand, can improve it by taking out a high interest loan, making regular on-time payments, and after time, refinance for a better interest rate.
Neither situation is irreparable, but having no credit definitely puts you in a better position than having bad credit. If you fall into either category, though, do not expect the most favorable interest rates on a loan–or even to be approved. With a little work, you can help your credit score by either building it from scratch or repairing it with responsible borrowing.