What’s the difference between bad credit and no credit?

Often times college students are surprised to find out that their diligence in not obtaining any credit during their college years is actually almost as negative as someone who took out 15 cards, ran up the balances and didn’t remember to pay a few bills along the way. The difference between bad credit and no credit looks just about the same if you are staring at a FICO score. But if a lender takes the time to review a report, they will quickly see the difference between the two.

Credit bureaus are adamant about handing out poor FICO scores for people with no credit history. In the event a student attempts to obtain their first credit card once they have graduated, they may have a more difficult time than a student who had no previous credit history before they applied for a credit card early in their college career. This is because there is a level of risk expected from the student population and a different level of risk for someone without parents as their potential payment fall back plan.

There are some credit card programs established for people with no credit. The Capital One Standard Platinum card has an introductory rate of 0%. However, after the introductory period the variable annual percentage rate is 19.80%. There are no annual fees and no set up fees for the account.

Someone with bad credit will find much different terms. The First Premier Classic card has a long list of fees, including a monthly servicing fee that totals $84.00 annually in addition to the $48.00 general annual fee. As a person with bad credit starts to improve with on time payments and low balances, they will be eligible for a credit limit increase which is also subject to a $25.00 fee for each increase.

Clearly, the expense of bad credit is more extensive than having no credit history. Regardless, as you are standing in the parking lot of a car dealer trying to make your first big purchase after graduating, you are going to wish you had taken some time to review the importance of establishing good credit.