Apr 21 2009
I heard it again tonight from a client who’s looking to buy his first home for his family: he thought because his wife had no credit that meant she had “bad” credit.
This is NOT TRUE. False. Fallacy. Myth. Mis-Information. Incorrect assumption. Bad Medicine (oh, wait, this blog is NOT “Dances With Wolves!” Scratch that last part)
If a person has no credit that just means the person has no credit score and no established credit history that a financial institution can use to determine credit-worthiness for approving a car loan, student loan, personal loan, credit card, line of credit, checking account, car insurance, or a mortgage loan. No credit means just that: here’s a person who has no established credit history.
Bad credit means just that: BAAAAADDDDD CREDIT. When a finance professional reviews a credit report with bad credit we encounter such things as charge-offs, collection accounts and judgments. Maybe the person owes money to a former landlord or a utility in the form of a judgment. Maybe the person had a checking overdraft account that went unpaid and ultimately wound up with a collection agency. Maybe the person borrowed a book from the library and never returned it thus racking up late charges eventually
resulting in a collection account (yes, I’ve seen it), or, MAYBE the person didn’t show up for jury duty and has a judgment for a fee incurred as a penalty for not reporting to jury duty from the County Clerk’s office (I can’t believe I capitalized that for a person that sues people for not showing up for jury duty).
All of that stuff is what you can easily see is BAD CREDIT. It’s NOT “no credit.” There’s some form of credit in there and it’s bad. And it’s on the person’s credit report.
Those other folks—like my client’s wife—who don’t have any credit appearing (whether Good, Bad, or Ugly), those folks have NO CREDIT.
There’s a difference. And with FHA mortgages . a person with NO CREDIT has a chance of building an alternative credit profile and getting approved for an FHA Insured mortgage loan.
The person with BAD CREDIT (and no other credit) has less of a chance of getting approved for such a mortgage loan. Let’s say “zero” chance, and leave it at that.
But get that idea out of your head right now about No Credit meaning “Bad” credit.
Hope that helps!
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