Is No Credit Better Than Bad Credit?
In general, having no credit can be less harmful than having bad credit, but neither guarantees approval.
With no credit, a lender may still decline your application because there isn’t enough history to judge how you handle repayment. With bad credit, lenders can see negative marks (like missed payments), which can increase the perceived risk and can lead to denials or higher rates.
- Whether you qualify for a loan or card depends on how risky you seem to a lender. If a lender predicts that you won’t pay back what you borrow, it will likely deny your application.
- Lenders see bad credit, no credit and thin credit as higher risk. Bad credit shows lenders that you may have had past financial issues. No or thin credit doesn’t give the lender enough information to make a prediction.
- You could still qualify for a loan with bad or no credit, but you may want to improve or build your credit score before applying.
No credit vs. bad credit
Your credit score and history are some of the biggest factors lenders consider when deciding whether to offer you a loan or revolving credit. Here’s what your credit reports and scores may look like if you have no or bad credit.
| No credit | Bad credit | |
|---|---|---|
| Credit reports | If you’ve never opened a credit account or haven’t used any credit in a long time, you likely have no activity on your credit reports. | If you have bad credit, your credit report likely contains events that are negatively impacting your score, such as missed payments. |
| Credit scores | When you have no credit, you won’t have a credit score. | When you have bad credit, you will have a score, but a lower one. |
What does having no credit mean?
Having no credit can mean two different things.
- Credit invisible: You don’t have a credit record with the main credit bureaus (Equifax, Experian and TransUnion), so there’s no credit history for a lender to see.
- Unscored/insufficient unscored: You may have some credit history but not enough to generate a credit score. This is also known as having thin credit.
It takes at least six months to generate a FICO Score, but it’s possible to generate a VantageScore in one month.
What does bad credit mean?
When someone has bad credit, that means that they have a lower score, usually due to past credit mistakes like missing payments and/or having a high credit utilization ratio.
What is considered a bad score depends on the credit scoring model, usually FICO Score or VantageScore.
FICO Score
A FICO Score below 580 is considered bad or poor. According to Experian, 90% of top lenders use FICO Scores when reviewing applications.
VantageScore
VantageScores between 300 and 599 are considered bad or poor, based on the 3.0 model. VantageScore isn’t used as widely as FICO, but many lenders and other decision-makers still rely on it — including some banks, landlords, utility providers and mortgage companies.
It’s possible to improve a credit score in 30 to 45 days, but how much depends on the positive action taken and what the credit score was to begin with.
Learn more: “How Long Does it Take To Fix Your Credit?”
Is no credit better than bad credit?
We asked Matt Schulz, LendingTree chief consumer finance analyst and author of “Ask Questions, Save Money, Make More: How To Take Control Of Your Financial Life,” his thoughts on the bad credit vs. no credit debate.
I always compare credit to a kid borrowing the car keys from their parents. The first time the kid asks, their parents are going to be very cautious. However, if the kid consistently handles themselves responsibly, their parents will ease up on the reins and eventually think nothing of handing over the keys. On the flip side, if the kid gets a bunch of speeding tickets or wrecks the car, they can probably forget about borrowing the car for a while.
In other words, it’s generally harder to borrow money with bad credit, but getting approved with no credit is also difficult. It should also be noted that credit score and history are only two of the many factors that lenders review on applications.
How to build or improve credit
Your next steps depend on whether you’re starting with no score (little to no credit history) or trying to recover from bad credit (negative marks on your credit report).
If you have no credit score
- Become an authorized user on a trusted person’s credit card. Just make sure that the card reports payments to the credit bureaus and that the cardholder always pays on time.
- Use a starter card (like a student card or secured card) to create an on-time payment history.
- Try a credit-builder loan to establish a record of on-time payments.
If you have bad credit
- Pay on time moving forward, as payment history makes up 35% of your FICO Score and is the most important rating factor.
- Lower existing balances if you can to improve your credit utilization ratio and overall risk profile.
- Check for credit report errors and dispute inaccuracies with the credit bureaus.
If you need help qualifying right now (can work in either case)
- Consider a secured loan, where collateral may improve approval odds.
- Apply with a cosigner or co-borrower to strengthen the application and start building positive history.
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