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    Bad Credit Vs No Credit - Which One Is Worse?

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    Which looks worse from a lender’s point of view: someone with no credit history or a bad credit borrower with several negative marks on their record?

    In this article, we take a look at the difference between bad credit and no credit to explore how each of these situations can be improved.

    What Does Bad Credit Mean? 

    A FICO score is the most commonly used measure of creditworthiness in the United States - and if yours is under 630, there’s a good chance that you fall into the bad credit category.

    • A bad credit score is almost always the result of past actions that are perceived as negative by the three main credit bureaus.
    • Late payments, a credit utilization ratio of over 30%, having accounts in collections, and bankruptcies can all cause your credit score to drop.

    What Does It Mean To Have No Credit? 

    Unlike bad credit, having limited credit history isn’t usually the result of past mistakes.

    It simply means that you haven’t used many lending products and don’t have a long credit history.

    • Thin credit file borrowers can establish a track record by applying for loans and credit cards or other lending products.
    • Unfortunately, even though having no credit isn’t your fault, it can still prevent you from being approved for certain types of borrowing products and even some jobs and home rentals.
    • If you have a regular income, you should be able to qualify for a credit card or loan to increase your score. 

    What's The Difference? 

    Lenders are basically concerned about one crucial thing when assessing the creditworthiness of applicants: your ability to repay your debts on time and whether or not you can afford the monthly payment amount.

    • Bad credit and no credit borrowers find themselves at a similar disadvantage -  but for different reasons. 
    • Having a thin credit file is a sign of inexperience – but this can be fixed by applying for new credit and managing your payments responsibly.
    • Bad credit customers are seen as a risk because their low scores are usually the result of late payments, accounts in collections, and bankruptcies. These events will make a bad impression on some lenders.

    Someone who is relatively new to using credit may be seen as less of a risk than someone who has borrowed money and proven to be an unreliable borrower in the past.

    Since negative marks stay on your credit record for a number of years, it may take longer for this type of credit customer to improve their score compared to someone with no credit history.

    What To Do If You Have Bad Credit?

    Reversing a poor credit score may be a challenge, but it’s certainly possible. You’ll need to identify negative information on your credit report and take action to correct it if possible.

    • Obtain your free annual credit report: This document is available free of charge and can be requested each week as part of the COVID-19 support measures.
    • Look for errors on your report: These include an incorrect name, address, and Social Security number. Late payments and accounts in collection that don’t belong to you should also be corrected without delay.
    • Dispute where necessary: You can launch a dispute with the credit bureau to remove factually incorrect information from your report.
    • Be patient - and pay on time: As you manage your accounts better, your score will gradually improve. Negative marks will fall off your report in anything from five to ten years while positive payment information is reported on a monthly or quarterly basis. 

    The Best Course Of Action If You Have No Credit History 

    Building your credit history takes patience and consistency, but it's definitely worthwhile over the long run.

    There are lending products specifically geared toward new credit customers and they can help you gradually increase your score. 

    • Secured credit cards: With easier qualifying criteria, these are some of the best accounts for new credit customers. You’ll need to pay a deposit to guarantee your credit limit. 
    • Credit builder loans: Instead of borrowing money, you’ll make regular payments that accumulate in a type of savings account. Your credit score will rise as you make timely payments and you’ll be left with valuable savings at the end of it. 
    • Upgrade slowly: Once you’ve used a secured card for several months to a year, you can ask to be upgraded to an unsecured version of the same product. 


    Having no credit may result in a low FICO score just like bad credit - but it looks a lot less bad in the eyes of potential lenders.

    While customers with thin credit histories are simply seen as inexperienced borrowers, those with bad credit can be seen as risky customers - especially if they have accounts in collection or past bankruptcies listed on their credit reports. 

    Rebuilding your credit if you have negative marks on your report or building it for the first time as a new credit customer takes time - but it’s definitely worthwhile.

    The strategies outlined above will help you boost your score and keep it high over the years when proper financial discipline is always practiced.