The Ultimate Question: Is Having No Credit Better Than Bad Credit?

April 13, 2019

Is no credit better than bad credit?

Is no credit worse than bad credit? —Isn’t that the ultimate question?

While the usual financial struggle is good credit vs bad credit, we forget to take into account that there are also consequences for having no credit at all.

Whether you have no credit or bad credit, one thing is for certain: You definitely don’t have good credit.

Is No Credit Better than Bad Credit?

Some people are under the assumption that bad credit or no credit, it’s all the same. While both can result in loan companies not wanting to work with you, it’s much easier to turn no credit into good credit.

But that doesn’t necessarily make it a good thing.

Why is No Credit Bad?

Having no credit means that you have no credit score and no credit history. If you have nothing established in your records, lenders cannot see how you manage your credit or payments.

This usually applies to young adults who have yet to open a credit card account.

Potential lenders will want to know that you can and will repay the amount of money that you borrow. At least with bad credit, lenders can view your records and have a starting point. Without a history, you will most likely be denied due to uncertainty.

Is Bad Credit Better than No Credit?

Bad credit usually results from missteps like late payments, maxed out credit cards, and loans that were defaulted upon. These mistakes also make you a risk to potential lenders because they will see you as someone who is unable to pay back borrowed money.

So no, bad credit is not necessarily the lesser evil.

As mentioned before, however, at least having a previous credit history gives lenders something to base their decision on. Your mismanaged credit will remain in your credit history for seven years. But, if you are making financial improvements, it will show as well.

No Credit Vs Bad Credit

With no credit, you’ll want to build a responsible reputation. With bad credit, you’ll want to do damage control.

The advantage of having no credit is that you can start with a clean slate. You can easily build your credit with secured credit cards that require a security deposit. There are also options like credit-builder loans to help you establish your credit without a security deposit.

While having a credit history is necessary, bad credit means that you have mismanaged your credit and finances. The good news is that after seven years, your credit mistakes will fall off your credit report.

The bad news is that it takes time and effort to fix your credit. The first thing you’ll want to do is check your annual credit report for any errors. You’re entitled to a free credit report every 12 months. You’ll also want to start paying your bills on time and only charge what you can afford.

Your Future Depends on Credit

Like it or not, you need credit. Whether you are renting, buying a house, a car or applying for a loan —you’ll need to have decent credit and credit history. So the question is no credit better than bad credit? becomes irrelevant when you realize that good credit is what really counts.

If you’re in need of a loan, contact us. We’d love to help!