If you have no credit, it means creditors don’t have a good way to predict how likely you are to pay your bills as agreed.
It’s not the same as bad credit, which means you have a credit history with major blemishes.
No credit vs. bad credit: What’s the difference?
Even if you have a reliable income but you have no credit history, you will be seen as a something of a risk because you don’t yet have a track record. And a lack of credit can result in:
Trouble finding a place to live.
Having to pay higher utility deposits.
Fewer options in case of emergency expenses.
Higher interest rates (or getting turned down) if you want to take out a loan.
A bad credit score — often defined as a score below 630 on a 300-850 scale — makes lenders reluctant to extend credit because you've made some major credit mistakes in the past.
Credit-builder loans can also help you establish credit and do not require upfront cash as secured cards do.
Authorized user status. Becoming an authorized user on someone else's credit card with a good payment record can help put you on the credit map. You are not responsible for payments, though, and its effect is limited.
Getting a co-signer. This is risky for the co-signer, because he or she is fully responsible for paying off the loan. Failure to pay on your part could hurt the co-signer's credit and jeopardize your relationship.
If you are starting with bad credit
If you have bad credit, you have a different problem with a similar solution.
Instead of trying to build credit, you are trying to rebuild it.
Unlike people with no credit, you have a credit report, and you’d be wise to know what it says. Here’s what to do:
Use annualcreditreport.com to get a free copy of your reports from each of the three major credit reporting agencies. You are entitled to one per week from each bureau.
Check your reports for errors, particularly for addresses where you’ve never lived, accounts you don’t recognize or payment amounts that seem off.
You can dispute errors online; you have to do it separately for each credit bureau, but it’s worth the time and effort. Incorrect information can significantly damage your scores.
Most credit missteps fall off your credit report in about seven years. In the meantime, you can use some of the strategies for establishing credit, particularly credit-builder loans or secured credit cards, to help re-establish yourself. Recent, positive payment information can help offset mistakes in your past.
Get more financial clarity with NerdWallet
Monitor your credit, track your spending and see all of your finances together in a single place.
Both situations severely limit your options for borrowing money, but bad credit is generally considered worse than no credit. Either way, building or repairing your credit score to access low-cost financing is in your best interest, especially when pursuing small business loans.
Having no credit is better than having bad credit, though both can hold you back. Bad credit shows potential lenders a negative track record of managing credit. Meanwhile, no credit means lenders can't tell how you'll handle repaying debts because you don't have much experience.
A bad FICO credit score may fall in the fair or poor FICO range. FICO considers a credit score to be fair if it's between 580 and 669, and poor if it's below 580.
If you have bad credit, you might have more trouble taking out a credit card, car loan or mortgage — and if you do get accepted for a credit card or loan, you can expect to pay higher interest rates. A FICO score of less than 669 would be considered a fair score and one below 579 is rated a poor score.
While not impossible, living without credit presents real challenges. Having no credit score can create some of the same obstacles as having a low credit score: Finding an apartment is harder.
As a general rule, graduate and professional schools are likely to consider a grade of Credit as equivalent to a grade of “C” and a grade of No Credit as a “Fail.”
You might have no credit history if you have never had a credit card or if you're someone who prefers to pay for everything from homes to cars with cash. A lack of credit history doesn't indicate you're irresponsible, either. Instead, it means you haven't used financial products that helped you build credit.
Well, there are several credit score ranges. For instance, 780–850 may be considered "excellent" while 720–780 may be seen as "good." But when it comes to a range that may be seen as bad, a score between 300 (the lowest) and 660 fits into the “poor” category.
More than 45 million consumers are considered unserved or underserved in the U.S., meaning they have little to no credit history, according to a new TransUnion study. Consumers have no credit reports when they do not use lines of credit for their purchases.
Life without credit isn't impossible. But you'll probably have an easier time if you start building up your credit now. (In the meantime, if you're considering a bad credit loan, you'll want to check out the OppU Guide to Bad Credit Loans here.)
Even with just a copy of your credit report, employers will be able to get a pretty good idea of how you have managed your debts over time, even if they aren't given a single score to sum it all up. So if you have a bad credit score, your employment status could be at risk.
So which scenario is worse — not having any credit or having bad credit? “Neither is good,” says Greg Reeder, CFP, a financial advisor with McClarren Financial Advisors in State College, Pennsylvania. However, “A poor credit score is worse,” he says. “If you have no credit, you can start from the ground up.
Different age groups have varying averages, with consumers aged 18–25 having the lowest average 679 FICO score and 661 VantageScore. Those aged 77 and older have a significantly higher average score as they've built it over many years, with their average FICO score standing at 760.
In the U.S., the average credit score is 716, per Experian's latest data from the second quarter of 2023. And when you break down the average credit score by age, the typical American is hovering near or above that score.
Having good credit can make achieving your financial goals easier. It could be the difference between qualifying or being denied for an important loan, such as a home mortgage or car loan. And, it can directly impact how much you'll have to pay in interest or fees if you're approved.
Having no credit history typically means you don't have a credit score at all. This is different from having a low credit score, which can stem from having limited credit history or negative reporting on your credit reports.
Having no credit card debt isn't bad for your credit scores, but you do need to maintain open and active credit accounts to have the best scores. By using your credit cards and paying the balances off monthly (so that you carry no debt), you could achieve an excellent credit score.
You spend above your means: While a line of credit can be helpful, it can also be a risk for people who spend more than they can afford to repay. It can be harder to limit credit card spending compared to debit card or cash transactions since you don't need to have the money available at the time of purchase.
Introduction: My name is Dean Jakubowski Ret, I am a enthusiastic, friendly, homely, handsome, zealous, brainy, elegant person who loves writing and wants to share my knowledge and understanding with you.
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