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Is Bad Credit Better Than No Credit?

Last updated 03/19/2024 by

Jamela Adam

Edited by

Fact checked by

Typically, having bad credit is worse than having no credit history. This is primarily because it’s harder to repair bad credit than build it. However, there are some exceptions to this.
Your credit score is a three-digit number that reflects your creditworthiness. Lenders use it to assess the risk of lending you money. The higher your score, the lower the risk, and the more likely you’ll qualify for a loan with favorable terms, such as a lower interest rate or higher credit limit.
In other words, having good credit can make your life much easier. But what if you don’t have any credit? How will that affect your financial life? And is bad Credit better than having no credit at all?
While most people know that having bad credit can make it difficult to qualify for loans and lines of credit, many don’t realize that having no credit can also make life difficult. Mainly because without a history of credit use, you have no track record to show creditors that you’re a responsible borrower.
This article will explore what it means to have bad Credit and no credit and whether one situation is better than the other. We’ll also provide actionable tips on how to build your credit score and improve your creditworthiness.

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Is having no credit better than bad Credit?

Generally speaking, it’s better to have no credit than to have bad credit. But of course, this will depend on the severity of your situation. For example, if your low credit score is due to an incorrect negative item on your credit report, you could quickly remedy the situation by filing a dispute and having it removed.
However, if your bad credit is due to filing bankruptcy, then, in this case, having no credit at all might be better. Bankruptcies could stay on your credit report for up to 10 years, and it can take a long time for you to recover from the damage fully. With zero credit history, at least you can start from a clean slate without worrying about the lingering effects of negative information.
Of course, every situation is different. If you’re struggling with poor credit, it may be worth working with a professional to repair your credit. But if you have no credit at all, don’t despair: there are plenty of ways to start building a positive borrowing history.

What does it mean to have no credit history?

When lenders consider you for loans, one of the things they look at is your credit history. The information in your credit file shows how well you’ve handled borrowing and repaying in the past. When you don’t have any credit history, it means that you’ve either never opened up a credit account or you haven’t had account activity reported to the credit bureaus in the past two years.
According to a study by Transunion, more than 45 million consumers in the United States have a thin credit file. In other words, they have little to no credit history. These “credit invisible” consumers can have a hard time navigating the lending landscape because lenders often rely on credit scores to assess risk.
Without a history of repayment, lenders have no way of knowing your ability to repay a loan in full and on time. For this reason, you may have to pay higher interest rates or provide collateral to qualify for a loan.

Pro Tip

Note that a small difference in interest rates can significantly affect the amount of debt you’ll have to repay. So by learning how to thicken your credit file, you can save yourself a huge chunk of change over the course of the loan term.

Ways to build credit from scratch

If you have zero credit history, don’t despair. By being proactive, you can start building credit from the ground up. Here are some ways to do so:

1. Apply for a secured credit card

A secured credit card is a great way to build credit from scratch. Unlike a traditional credit card, a secured card requires a deposit, which acts as collateral should you default on payments. As long as you don’t owe the credit card company any money, you can get the security deposit back once you close the account.
By using the card responsibly and making on-time payments, you’ll start to build a positive credit history. Just be sure to shop for secured credit cards that report your account to all three major credit bureaus and don’t charge high annual fees.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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2. Become an authorized user

Another option to establish credit is by becoming an authorized user on someone else’s credit card account. As an authorized user, you’re essentially riding on the strength of the primary cardholder’s good payment history.
Of course, to benefit from this method, you have to make sure the account owner manages their account responsibly and pays their bill on time each month. That way, the positive activity can be reported to the major credit reporting agencies and help you build a strong credit history.
Keep in mind that if the primary cardholder pays a bill late, this negative information can be reported to the credit bureaus and hurt your credit score.

3. Consider getting a credit-builder loan

Many banks and online lenders offer credit-builder loans to help those with thin credit files build credit.
Unlike traditional loans, you don’t receive the loan amount upfront with a credit-builder loan. Instead, you make monthly payments to the lender, and these payments are reported to the credit agencies to help improve your credit score. Once the term has come to an end, you’ll then receive the amount you paid.
Credit builder loans can be an effective way to improve your credit, but it’s important to make sure that the payments are made on time and in full. Otherwise, the loan could do more harm than good.

What does it mean to have bad credit?

In general, your credit score is considered poor if your FICO score falls between 300 – 579, or your VantageScore falls between 300 – 499. This means you may have difficulty qualifying for loans or lines of credit, as lenders see you as a greater risk.
Additionally, you may be charged higher interest rates if you’re approved for financing. Sometimes, bad credit can even prevent you from getting a job or renting an apartment.

Tips for rebuilding credit

Having poor credit is not the end of the world. By taking actionable steps to rebuild your credit history, you can improve your chances of getting approved for loans and other forms of credit in the future.

1. Keep credit utilization low

Credit utilization is an important factor in determining your credit score. It’s calculated by dividing your total credit card balance by your total credit card limit. For example, if you have a credit card with a limit of $2,000 and a balance of $1,500, your credit utilization would be 75%.
A low credit utilization ratio shows potential lenders that you’re not overextending yourself and that you’re a responsible borrower. Most experts recommend keeping credit utilization below 30%.

2. Pay bills on time

Your payment history accounts for 35% of your credit score, which is why paying bills on time is crucial for rebuilding credit. Late payments can stay on your report for up to seven years and negatively impact your creditworthiness for a long time.
So if you want to achieve a high credit score, start by making all of your payments on time, every time. This includes utility bills, credit card bills, mortgage payments, and any other type of loan you may have.

Pro Tip

To stay on top of your bills and avoid damage to your credit score, set up automatic payments. When you opt for auto payments, your bills will be paid automatically from your account on the due date. Just be sure to keep enough money in your account or you’ll incur overdraft fees.

3. Check credit report for errors

Federal law allows you to request a free copy of your credit report every 12 months from each of the three major credit bureaus. If you find any errors, dispute them with the credit bureau immediately. You can also seek help from credit repair companies if you have a lot of negative items on your credit report and don’t have the time to dispute them yourself.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Pro Tip

Head to to receive a free copy of your credit report from the three credit bureaus — Experian, Equifax, and TransUnion.

4. Consider debt consolidation

If you’re looking to rebuild your credit, one of the best things you can do is focus on paying down your high-interest debt. This includes any past-due accounts as well.
If you’re having trouble keeping up with your debt interest payments, you might want to consider taking out a debt consolidation loan. This will typically allow you to make one monthly payment that’s lower than your total interest payments and help you get out of debt faster.


Do more people have good credit or bad credit?

In the United States, more people have good credit compared to bad credit. According to Experian’s research, more than 70% of consumers in the U.S. had FICO scores of 670 and higher in 2021. In fact, the average credit score in the country has been continuously rising since 2013, reaching an average of 714 in 2021.

Can having no credit hurt you?

Yes, having no credit can certainly hurt you. Generally speaking, a good credit score can help you get approved for loans, credit cards, and even a mortgage. But if you have no credit history, lenders may be hesitant to give you money. This is because they have no way of knowing how likely you are to repay your debt
So if you’re not already working on building up your credit file, you might want to start now.

What credit score do you start with?

Many believe that having no credit history means your credit score is zero. This isn’t the case. When you’ve never opened a credit account, your credit score simply doesn’t exist. But if you decide to start building credit today and apply for a credit card, your credit score will start at 300, according to the FICO credit score model, or at 501 if you use the VantageScore model.

Key Takeaways

  • Generally speaking, having no credit is better than having bad credit since you’ll have a clean slate to work with. But of course, there are always exceptions.
  • FICO credit scores between 300 and 579 and a VantageScore between 300 and 499 are considered poor.
  • To build credit from scratch, consider applying for a secured credit card, taking out a credit-builder loan, or becoming an authorized user on someone else’s account.
  • To repair poor credit, make sure to keep your credit utilization low, pay bills on time, dispute credit report errors, and pay down past-due or high-interest debt.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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