Is No Credit Better Than Bad Credit?



When it comes to getting approved for a loan or other type of debt, is a completely clean slate better than having a bad credit score or history? As with anything involving money and credit, the answer is complicated because it depends on a variety of factors. Find out more below.

What Does No Credit Mean?

a businessperson turns pockets inside out

No credit typically means you don’t have a credit score. You don’t have a credit score when you don’t have enough recent credit history for the scoring models to come up with a number. 

To have a FICO Score, you must meet the following requirements:

  • Have an open and active account for at least six months
  • Have an account that’s been reported to the credit bureaus within the past six months
  • Have no indication on your accounts that you’re deceased

To have a VantageScore 3.0 credit score, you only need one tradeline reported to your credit history. It doesn’t matter how old the account is.

It’s important to note that you can have “no credit” with one credit bureau and have a credit history with others. There are three major credit bureaus, and not all lenders report to all three. If your lender only reports to one credit bureau, you’ll only have a score when the files from that bureau are used to compile your score.

What Does Bad Credit Mean?

a credit report with a poor credit score of 425

Bad credit typically refers to both your credit score and the information in your credit profile. A good credit score is one that’s above 660 or 670, depending on which model is being used. Anything below that ranges from very poor to poor to fair. These might all be considered “bad credit” in the context of proving your creditworthiness when applying for a loan or credit card.

The major difference between bad credit and no credit is that bad credit tends to imply that you made some financial mistakes. You might have missed payments, defaulted on loans or managed your accounts in ways that don’t look responsible on paper. Find out about some of the things that can lower your credit score to understand what can contribute to bad credit.

What Does Thin Credit Mean?

credit cards sit on top of credit card statemen

Thin credit means you do have enough history for a credit score to be calculated, but you don’t have enough to get a good credit score. This can be the case even if you’ve paid on time and otherwise managed and account responsibly. Because credit scores are also based on factors such as age and mix of credit, credit utilization and the number of inquiries on your account, it can take some time for someone new to credit to build up to a great score. 

Which Is Worse: No Credit or Bad Credit?

a person shows a credit score to another person

So, when it comes to getting a loan or other opportunity based on your credit score, is it better to have no credit or bad credit? It depends, but often, it’s better to have any credit.

For example, if you want to get a car loan, the lender typically checks your credit. If you have no credit at all, you’re a complete mystery. The lender has no information on which to make a risk assessment. Some banks simply won’t deal with you at all. 

However, if you have bad credit, the lender has information to work with. It can see that you might be a risky borrower. It might also see that though your score is lower than everyone might like, you have made some important moves in the past year to improve your credit. Even if that’s not the case, the lender may be able to offer you a loan at a higher interest rate than you would get if you had good credit. 

In this situation, bad credit is better if the goal is getting a vehicle. You may pay more for the opportunity, but you at least have the option.

How Can You Start Building Credit If You Don’t Have Any?

a person holds a mobile phone with an excellent credit score on display

If banks won’t work with you if you don’t have a credit score, how can you ever hope to get one? Don’t worry, there are plenty of products and options designed to help people start building credit. Choosing the right one for you means considering your financial goals and needs. Here are a few options to get you started.

Get a Cosigner 

get a cosigner: two people sign a contract

If you need a loan for something like a car and you have no credit (or very bad credit), you might need a cosigner. A cosigner is someone with better credit who the bank sees as a better risk than you. When that person cosigns for the loan, they effectively agree to pay back the loan if you don’t pay as agreed.

The lender then reports payments to the credit reports of both you and the cosigner. That way, you start building a credit history that can keep you from needing a cosigner in the future.

This option is best if you really need a large item, such as a car, and need to buy it on credit and someone with good enough credit is willing to cosign. 

Apply for a Secure Credit Card

a pen and credit cards sit on top of a credit card application

Not everyone has someone who is willing or able to cosign on a loan, and not everyone needs to start their credit-building journey with that type of commitment. Another option is applying for a secure credit card.

A secure credit card is secured by a deposit you make. The amount of your deposit becomes your initial credit limit. As you use your card responsibly and make payments on time, you may get a higher credit limit or get your deposit back. The credit card company also usually reports to one or more of the credit bureaus, letting you build your credit history.

This option is best if you don’t need to borrow money and just want to build your credit. You will also need around $200 or more to put down as a deposit to secure an initial credit line. One reason to apply for a secure credit card is if you don’t have any revolving accounts on your credit history. Lenders like to see that you can manage multiple types of accounts well, so credit mix plays a role in your credit score. 

Get an Installment Loan

a person applies to get an installment loan

Already have a credit card or actually need money for an emergency purpose? In such a case, you might start building your credit with an installment loan. Look for lenders like Wise Loan that don’t require great credit and work with you to help you build your credit as you pay back the loan.

This option might be best if you need to add an installment loan to your account for better credit mix or you need money for an emergency or unplanned expense.

You don’t need great credit to get approved for a loan with Wise Loan. Find out more and apply today.

The recommendations contained in this article are designed for informational purposes only.  Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.