Bad Credit vs. No Credit: Which Hurts More?

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When you apply for a loan, creditors use your credit score to judge your past use of debt and determine how you are likely to handle debt in the future. So what if you have bad credit or no credit history at all, and what does it mean when you want to apply for a loan?

Both situations can make it difficult to get approved for a loan—but not impossible. Let’s compare bad credit vs. no credit so you can understand what to do if you find yourself in either situation.

No Credit Score

Credit history matters because lenders want the reassurance that you will make your payments on time and pay back your debts in full. When the applicant is a blank slate with no history, they get a little nervous—there’s no evidence that you won’t be a risky investment.

What Does It Mean to Have No Credit Score?

If you have no credit score, it simply means that you haven’t borrowed money in the last seven years. Most likely you are a college student or young adult at the beginning of your financial independence, and you’ve never had a credit card or student loan. It also means you haven’t made any mistakes with debt yet—but you can run into several problems. People with no credit sometimes:

  • Have higher interest rates on loans and credit cards
  • Don’t qualify for credit cards or loans
  • Find fewer options in emergencies when they need cash fast
  • Have trouble renting an apartment, or pay higher deposits on rent and utilities

So, you say, what is my credit score if I have no credit? If you have no credit, you also have no credit score.

FYI, it is impossible to have a credit score of 0—the lowest possible score is 300.

How Can I Build My Credit Fast?

If you have no credit, you have some options to build it, including:

  • Take out a student loan
  • Apply for a credit card
  • Put the apartment utilities in your name
  • Apply for a secured loan or credit card

Bad Credit

A bad credit score is any score lower than 630 on a 300 to 850 scale. Bad credit means you do have a credit history, but you’ve made some mistakes in how you’ve handled your debt.

What causes a poor credit history? A bad credit score is the result of poor management of debt. When your credit history shows numerous late or partial payments on credit cards, loans, and other bills, you’ll have a low credit score. You might even have defaulted debts, or debts that have gone to collections. A foreclosure or bankruptcy can also tank your credit score.

People with bad credit run into similar problems as those with no credit. You’ll run into high interest rates and have trouble qualifying for loans, including car loans and mortgages, because lenders will consider it too risky to lend to you.

How Can I Improve My Credit Score?

Repairing poor credit can take years. Start with these steps:

  • Get a copy of your credit report and check it for mistakes.
  • Stay current on your debt payments.
  • Pay down your debts to reduce how much money you owe.

Bad Credit vs. No Credit

Both bad credit and no credit lead to similar problems: high interest rates and trouble qualifying for loans. But which is worse?

When it comes to bad credit vs. no credit, bad credit is worse. It takes years to come back from and makes it more difficult to reach your financial goals. Having no credit is an opportunity to start building good credit that will help you qualify for loans, credit cards with perks, car loans, and eventually a mortgage.

If you fit into either of these credit categories, you’re probably wondering, “Can I get a loan if I have no credit or poor credit?” In both cases, getting a loan is hard, but not impossible. Online lenders such as Power Finance Texas can work with you to help you qualify for a personal loan.

Take Control of Your Credit

Use these tips to start building or repairing your credit for the future. If you have no credit or bad credit and need cash now, consider applying for a short-term personal loan from Power Finance Texas. Contact us today with any questions or to learn more.