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Modern Living Room

No Credit vs. Bad Credit

Is No Credit Better than Bad Credit?

Quick Answer Lack of credit and bad credit can make it hard to get a loan or credit card, rent an apartment and perform other tasks, but no credit is better than bad credit.

In this article:

  • What Does It Mean to Have No Credit?

  • What Does It Mean to Have Bad Credit?

  • Which Is Worse, Bad Credit or No Credit?

  • How to Build Credit if You Have No Score

  • How to Build Credit if You Have a Low Score

Lack of credit and poor credit can pose similar challenges, and they share similar remedies. Both circumstances mean you'll likely have difficulty qualifying for loans, credit cards, rental housing and more—but you can correct lack of credit much more quickly and easily than bad credit. Here's an overview on how to approach each situation.

What Does It Mean to Have No Credit?

Lack of credit typically refers to the inability to generate a credit score. A credit score is the benchmark many lenders use to gauge your creditworthiness. Landlords, cellphone companies, auto rental agencies and employers in certain industries also may use credit scores to help decide if they want to work with you. Lack of a credit score, also known as credit invisibility, indicates the absence of an active credit report at one or all national credit bureaus (Experian, TransUnion and Equifax).

A credit report is a record of your history of borrowing money and repaying debts. Most individuals who lack credit have never taken on debt, and as a result have no recorded payment history. These people often include recent immigrants and young people new to the world of personal credit. It's also possible to become unscoreable after years of positive credit history and good credit scores: If you go six months or more with no borrowing or payment activity, the FICO credit scoring system cannot generate a score from your credit report. This may be most common among retirees who've paid off mortgages and loans, and whose credit cards have fallen into disuse.What Does It Mean to Have Bad Credit?

If you have bad credit, it means your credit report contains information that causes you to have a very low credit score. The most popular credit scoring systems, the FICO® Score☉ and VantageScore®, assign three-digit scores ranging from 300 to 850, with higher scores indicating greater creditworthiness. FICO characterizes scores of 579 or below as poor, and those from 580 to 669 as fair. Once you reach a score of 670 or higher, your credit is considered good or better.

Credit report entries that cause serious score drops include:

  • Bankruptcy

  • Foreclosure on a home or other real estate

  • Significant numbers of bills turned over to collection agencies

Missed or late debt payments cause less severe drops in credit scores, but accumulating multiple instances within a few years can also lead to poor scores. All of these events are evidence of failure to repay a debt according to the schedule agreed upon when you accepted credit. Failure to honor a loan

agreement is a red flag for lenders, and the FICO® Score and VantageScore systems respond to them with significant score reductions.

Which Is Worse, Bad Credit or No Credit?

If you have no credit, when someone runs a credit check on you, your lack of credit report means no credit score can be produced. If you have poor credit, a credit check returns a low credit score. Having no credit score and having a low credit score are far from the same thing, but they often have the same practical results, which may include:

Inability to qualify for loans or credit cards

  • Ineligibility for instant financing approval on purchases from cellphones to cars

  • Landlord or property manager refusal to rent you a house or apartment

  • High security deposits on apartments, cable TV and inter

net equipment, and rental cars

While having no credit or bad credit can be obstacles to getting and using credit, lack of credit typically can be remedied much more quickly than poor credit: A track record of six months' credit usage can enable you to get credit scores. Poor credit caused by severe credit mishaps can take years to recover:

  • Chapter 7 bankruptcy filings remain on your credit reports (and adversely affect your credit scores) for up to 10 years from their filing date.

  • Chapter 13 bankruptcy filings, foreclosures, reposses

sions and collection accounts appear on your credit reports for up to seven years and may hurt your credit scores as long as they remain.

These events are all likely to hurt your credit scores as long as they persist in your credit reports. Their negative effect on your credit scores lessens over time, but lenders may consider them grounds for disqualifying your application, even if your credit scores have improved.

ByJim Akin


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