It is one of those essential facts of life that credit is an essential building block for financial stability.
Your credit history allows you to access all manner of loans. It is also an essential factor when applying for housing, phone contracts, and more.
Despite the importance of credit history, too many Americans have slipped through the cracks. In 2020, a full 26 million US adults are defined as “credit invisible“. This means that they have no credit history whatsoever to speak of.
While some might not consider this a problem, having no credit history means suffering restricted access to a wide range of opportunities.
With that in mind, here are five key disadvantages to having no credit history:
Difficulty Accessing Loans
If you have no credit score to speak of, then the main disadvantage is arguably the difficulty you will have accessing loans of any type.
We all need loans for a number of crucial things in daily life. Mortgages, credit cards, car loans, the list goes on.
If you apply for a loan and the lender sees that you don’t have any credit history, they will be unable to tell if you are a trustworthy borrower.
However, if you need a loan and don’t have a credit history, there are options available. You can view here for more information on reputable loans that do not ask for a credit check.
Difficulty Accessing Housing
If you have no credit record, then your ability to access affordable and quality housing will be impeded. When applying for a mortgage, a lender will always conduct a credit check.
Without any credit history, a lender will be unsure of how to assess your ability to pay. The same applies to rental housing.
Landlords and realtors increasingly subject potential tenants to credit checks to see if they are able to pay the rent. Without credit, you will be at a serious disadvantage.
Paying More for Insurance
If you have no credit card and have not been able to build credit, the results can be very expensive.
When applying for housing, life, car, and even health insurance, the rates are often decided by an applicant’s credit score. With no credit, an insurance provider will consider you a high-risk customer.
As a result, they will likely charge higher rates for your insurance, forcing you to pay more for a product than you should.
Difficulty Renting Vehicles
Even something as mundane and typical as renting a car will cost you more and be more difficult if you have no credit score.
A rental company will want to know that you can pay for any potential damages that might occur when you are driving one of their vehicles.
Without a credit score, they will not have any way of knowing that you are able to do so. The result is higher costs and more barriers.
Barriers to Applying for Jobs
Although this is rarer in today’s world, many large employers continue to conduct credit checks on job applicants.
Employers might see a credit score as an indication of an applicant’s good character and trustworthiness.
If someone who is competing for the same job as you and has a higher credit score, that could tilt the scales in their favor.
What To Do if You Have No Credit History
If you have no credit history, it’s not the end of the world. Building credit is an essential component of good finance.
To find out more about how you can use credit to obtain financial stability, make sure to read our expertly-curated Personal Finance guides today. Below are a few that may be helpful, especially if you’re trying to build your credit: